Gearing up for the next AMP round
Examining the water industry's expenditure on valves and actuators in the lead up to AMP4
The period covering the end of one AMP round and the beginning of the next almost inevitably involves an element of uncertainty for most suppliers to the water industry. If past experience is any guide, the first year of the new round is likely to be relatively quiet whatever the size of the ultimate spend under AMP4 and pressure to keep water prices down from politicians with an anxious eye on the ballot boxes is not likely to grow less. Even so, no matter how much business plans submitted by the water companies may be slimmed down after Ofwat’s final determination at the end of the year, there is no doubt most of the work will involve substantial expenditure on valves and actuators.
Apart, perhaps, from some of the proposed nature conservation or ecological schemes, valves and actuators are an integral component of virtually every project regardless of whether it involves renewal, upgrading or new construction and is water, waste, sewage, leakage reduction or flood prevention related.
As throughout much of the closely linked pump industry, the general consensus seems to be that, even if there is no dramatic increase in demand, a significant downturn is highly unlikely. Suprisingly, a rapid, albeit unscientific, straw poll recently conducted among a random selection of valve manufacturers and distributors revealed a surprisingly large number were fairly relaxed about the final outcome of AMP4 amounting in some cases to something approaching indifference.
Generally, where major projects such as new treatment works or large-scale renewal schemes are involved, only the larger suppliers appear to be in serious contention. Especially, of course, those committed to framework agreements that facilitate forward planning.
For the larger schemes there now seem to be fewer serious players in the market. Recent years have seen a considerable number of acquisitions and mergers in the valve industry, as well as a few closures and one by-product of the generally welcomed European Pressure Directive has been a reduction in the number of companies interested in carrying out complete installations.
Nevertheless, competition is intense, even though constrained by the need to comply with ever proliferating EEC legislation and the need to maintain and improve standards in both service and end product to match widespread concern with whole-life costs, cost of ownership, etc. More perhaps than most industries, the valve and actuator sector is increasingly customer or user led and the larger manufacturers are better able to operate with the tightly squeezed profit margins now apparently the norm. They are too often better placed to benefit from the ability to source globally, either in the form of complete valves or of components.
The framework agreement concept is not, understandably, universally popular but long-term practical experience now shows there are solid benefits for the parties involved when the agreement is well structured and implemented. Close, ongoing co-operation between originator, supplier, installer and end-user can only be beneficial in terms of rapid exchange of performance data, shared operational expertise, more precisely targeted R&D and the ability to plan for future demand. Where maintenance forms part of the agreement, there is also evidence of substantial reduction in overall operating costs.
Many valve manufacturers and distributors, even where not directly concerned with the outcome of AMP4, are still active in the field of water, waste and effluent. Waste is currently a major issue across all sectors of industry and in recent years there has been a significant increase in the number of companies installing and operating there own in-house industrial waste and effluent treatment systems.
This seems set to continue to be an important market. With rising water prices, wastewater reclamation and recycling is likely to be another high-growth sector. The smaller, more specialised manufacturer or distributor is often better placed to exploit the niche applications that sometimes emerge, particularly those involving waste from the chemical or process industries.
Implementation of the Water Framework Directive (WFD) looms large on the horizon but opinions appear to differ widely on whether or how it will impinge on AMP4 and in practical terms it does not yet appear to be a major concern for equipment manufacturers or suppliers. Of greater immediate interest to some in the valve and actuator industry is likely to be Thames Water’s announcement of plans for the UK’s first desalination plant.
This is a field in which the British industry has considerable expertise to contribute thanks to experience in the Middle East and elsewhere. Domestic water services remain an important sector for the valve supplier. One result of the current trend for converting or upgrading existing buildings apartments, leisure facilities etc, is that water pressures from the company main are often insufficient to provide optimum performance from combi-boilers, designer shower systems, dish washers and other modern domestic equipment and fittings. New or considerably upgraded pumped domestic water systems are now frequently necessary. In many of the more up-market private housing and apartment developments, small pumping units are now being installed to cater for demand for higher pressures. Prevention of backflow due to back pressure or back-siphonage and pressure reduction in off-peak periods are other areas where many valve suppliers predict further growth. In the case of the former, the reduced pressure zone principle seems now to have gained widespread acceptance.
As for export markets, although the Middle East boom is only a memory, clearly sooner rather than later, large sums of money will have be devoted to restoring and upgrading Iraq’s water and sewage systems but unless the political climate changes very dramatically, it is not easy to envisage UK companies, apart perhaps from consultancies, being willing or able to play any considerable role in the near or medium term.