A welcome change of direction for AMP 6?
Initial signs are encouraging that the nature of the AMP process may finally be changing. Although AMP 6 itself does not kick in until March 2015, many are predicting an emphasis on value for money and long term outcomes, including a focus on the total expenditure on an installation over its lifetime. Tony Hoyle, General Manager for ABB's UK Measurement Products business, explains how the AMP process could finally be undergoing a much needed change of direction.
After years of acting contrary to the interests of many of the parties within it, it would seem that the AMP process is finally starting to undergo some welcome changes. Especially encouraging is Ofwat’s focus on ‘long term outcomes’ and its aim to give water companies greater flexibility in how they deliver them. Quoted in an Ofwat press notice earlier in 2013, outgoing Chief Executive Officer, Regina Finn, said:
“There has been broad support for our plans which align with a culture that is changing in the water sector. We want companies to move away from ticking regulatory boxes and to concentrate instead on the importance of delivering for customers now and in the future including the environment. Our changes will drive a more efficient, dynamic, and customer-focused sector, developing long term solutions to meet long term challenges. This is good news for customers, the environment and the economy.”
This change away from the rigidly structured five-year capital infrastructure projects of previous AMP periods to a more flexible total life focused approach will have a positive impact on the supply chain. Water companies are now likely to be looking more at sourcing suppliers offering not only products, but also the expertise needed to support them throughout their working life.
The prospect of a focus on the long term offers encouragement for those keen to see a smoother AMP process. In particular, a focus on the longer term would certainly help to avoid the detrimental impact caused by the ramping up and ramping down of activities during the transition between previous periods.
Partnerships and early starts
Anyone who has read my previous article ‘Why partnership and early starts may pave the way to a smoother AMP transition’ will know that I am a keen advocate of starting work on a new AMP period as early as possible.
A quick scan of the marketplace already offers some encouraging signs of preparations being underway for the new AMP period. Several of the UK’s largest water utilities, for example, have already started to undertake the preliminary work involved in selecting partners for their AMP 6 projects so that they can get work underway as soon as Ofwat releases funding.
Severn Trent Water, United Utilities, Southern Water, Dwr Cymru Welsh Water, Thames Water, Anglian Water and Yorkshire Water have already reached various key stages in finding and appointing their partners and contractors for AMP 6.
Indeed, Thames Water has actually gone one step further, announcing in May this year its ‘super-alliance’, which has been established to maximise collaboration between the company and its various suppliers. Even before the start of AMP 6, this ‘super-alliance’ is already at work on some parts of Thames Water’s proposed programme, which will see continued improvements to its infrastructure not just within AMP 6, but for at least the next 25 years. In an article in New Civil Engineer in September (‘AMP6 frameworks: getting shovel ready’), Lawrence Gosden, Thames Water’s asset director, says that a key reason behind the formation of the super-alliance was to completely transform the way that the company delivers its capital investment programme:
“We have a significant amount of work to do, upgrading our deteriorating infrastructure over the next 25 years and beyond, while keeping customers’ bills affordable. If we are to achieve this, a different approach is required.”
Such partnerships could well present a workable and effective template for future AMP periods. As well as allowing the fulfilment of the immediate objectives of an AMP period, they could also provide the much-needed framework for continuity that has been badly lacking in previous years. By enabling partner companies to count on their continued association with a water company outside of the five year period, the creation of long-term partnerships could yield a wide variety of benefits that have not been fully realisable within the previous AMP structure.
One such benefit is innovation. Compared to other industries, the UK’s water sector has seen relatively little in the way of transformative innovation. In the same period that Apple has created and refined its market-leading iPhone and iPad products, for example, there has been relatively little if any real change in the technologies used by water companies to treat, distribute and collect potable and wastewater.
The AMP process has done little to help create a conducive environment for technological innovation. Faced with an uncertain environment caused by the five year structure of an AMP period, companies have had little incentive to invest time, money and resources into new products and services, which typically require a much longer payback.
It is not as if there isn’t room for innovation in water applications. Figures from intellectual property law specialist Marks and Clerk show that patents filed for new technologies in the Chinese water sector have grown each year, accounting for around 28 percent of all patent applications worldwide. This proves that a sufficient incentive to innovate – in China’s case the need to match a scarce resource to the needs of billions of people – can lead to new technologies being developed if both the will and the market is there.
There is also a considerable amount of innovation going on behind the scenes in the UK itself. Various academic institutions, such as Cranfield and Sheffield, are already working with various suppliers, for example, to develop new products. An example is Project Neptune, which was a strategic partnership between ABB, Yorkshire Water, United Utilities, the Engineering & Physical Sciences Research Council (EPSRC) and seven UK universities involving the development of new technologies for gathering and utilising real time information on water leakage.
It is to be hoped that the prospect of a more long-term approach will help to pave the way for more programmes such as these. For suppliers especially, the prospect of working with water companies on projects across the AMP periods provides a much more attractive environment in which to provide and develop new products and services.
All of the indications are that AMP6 could well be the first all-round win scenario in the scheme’s history. Whereas in the past water companies were reliant on Ofwat to set their investment priorities, the greater freedom being afforded within AMP 6 means that they can now focus more on their existing infrastructure, leading to potential improvements in performance that could increase effectiveness and, ultimately, profitability.
For suppliers, the longer term focus being encouraged by Ofwat, together with the apparent trend towards the formation of AMP-independent partnerships, provides greater certainty and the ability to better plan their own resources without the disruption caused by inter-cycle ramping.
For the UK’s water customers, there is the prospect both of price stability and the corresponding benefits of a more innovative water industry where both water companies and suppliers are more prepared to take reasoned investment risks and trial new technologies.
For once this could actually be an AMP cycle to look forward to.