Cave: We need Ofwat R&D body

A new Research & Development (R&D) body should be established by the government, industry regulator Ofwat and other bodies in order to establish priorities for innovation.

This was the point stressed by Professor Martin Cave in his final report concerning competition and innovation in the water markets. Funding for this R&D facility would come from the industry and customers, said Professor Cave.

The recommendation is among a number outlined by Professor Cave in the report, which, if approved, will result in a major shake-up of the water industry. His main proposal is that businesses should be allowed to choose their water and wastewater retailer instead of relying on the local water company.

Other recommendations include:

  • The Environment Agency should have powers to tackle over-abstraction and to facilitate the trading of abstraction and discharge licences
  • Ofwat should give customers and their representatives a greater role in determining the services provided by their water company through “negotiated settlements”
  • Ofwat should encourage greater innovation by increasing the incentives for out-performance and addressing the potential bias to capital expenditure
  • Ofwat should modernise and streamline the regime of inset appointments. There should be regulated access and supply frameworks which are binding on participants. Charges should also ensure that efficient companies are able to cover their costs.

Professor Cave said: “The industry has achieved a great deal in the last 20 years, but climate change and population growth represents real challenges to the current structure of the water sector – challenges that the industry must meet. These changes could benefit the economy by £2.5B over 30 years.”

Water UK has welcomed the report. Chief executive Pamela Taylor said: “We are looking forward to working with ministers, regulators, customers and investors to ensure that the Cave proposals are implemented in ways that benefit all customers in the long term.

“Ministers are right to adopt a step-by-step strategy to Martin Cave’s recommendations and make companies’ access to the investment funds they need a key priority.”

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