Technological revolution ahead

There is fairly unanimous agreement that the UK’s water industry should innovate more to meet the challenges imposed by climate change, population growth and overall water infrastructure sustainability. It is the ‘how to innovate’ question that is not so easily answered.

A start point must be the regulatory regime where government has a major role in terms of creating the right regulatory framework but also in providing funding for development work.

And part of the regulatory overhaul must be an end to ‘stop-start’ investment, says Tom Foulkes, director general of the Institution of Civil Engineers (ICE) in its assessment of the government’s performance after a year in office.

UKWIR’s research shows the water sector in the UK, much like that elsewhere in the world, is seen as risk averse, insular and slow to innovate. “The current package of regulatory incentives does not encourage water companies to look to the longer term even though asset lives are long and there are the challenges of addressing impacts of climate change and population growth,” it says in its March report.

Ofwat cautions against regulatory intervention, such as a duty, to support innovation warning that it could perpetuate inefficient innovation, wasting money on something that should fail quickly but is artificially kept going. “The regulatory regime already provides incentives for the companies to innovate in delivering regulatory outputs efficiently,” Ofwat says. It allows companies to keep any efficiency gains made through innovation during the AMP period.

“We consider that, following the experience of other utilities such as telecoms and electricity, market mechanisms and competition would drive the companies to improve and innovate more than regulation. New entrants will put pressure on the companies, incentivising them to find better ways of working,” it says.

Ofwat recommends creating a body that brings together research organisations and companies from a range of sectors to focus attention and funding on specific water challenges that demand innovative responses.

“This would be owned, funded and supported by the water sector in its widest sense, not just the regulated water companies,” it says.

“As an important element of this approach, we are currently working with the Technology Strategy Board to create an innovation platform for water. This approach, which could offer part-funding on a competitive basis to the whole sector, would support business in bringing innovations to the market.”

This differs from Cave’s original recommendation in that it would not be directly funded by customers, an approach Ofwat believes likely to be much more effective than creating a new pot of research and development funding from customers’ money.

Ofwat rejects any statutory duty on it to support innovation, believing the most effective way of doing this is by harnessing market forces. The current five-year regulatory cycle imposes further problems for innovation, which is often perceived for the longer term as high-risk. Venture capitalists who fund innovation and are keen on a fast return in their investment are always in a hurry: water markets are cautious. “You can have bugs in a piece of software, but you can’t have bacteria in a water system,” says Jonathan Kolodny, of consultancy McKinsey.

There is funding available for research although it is not always easy to track, which could explain the low take-up of funding, according to UKWIR’s recent report, UK Water Innovation – Which Way Forward in Europe. UKWIR says for incentives to be effective “there must be clarity about the objectives of the water sector”. This should be accompanied by a “new regulatory framework and a supportive water company culture,” it says.

A change by Ofwat to look at the evidence regarding the perceived imbalance between incentives for capital and operating solutions will help, as will publication of water companies’ Strategic Direction Statements. UKWIR suggests a “broader overhaul of the regulatory framework is required with a ‘lighter touch’, giving higher level outputs as well as strategic incentives”.

Water pricing is the key to innovation and those regions, such as Australia, California and Israel, where there is a serious threat of water shortage tend to have a better track record. In 2006 the Israeli government launched a programme to support water companies. Part of this support recognised the small local market and provided help to market and sell new technologies abroad.

Aqwise is one of the new breed of water-tech firms that have emerged − its Agar process has applications in municipal wastewater treatment. Retrofitting existing plants increases the treatment capacity of existing facilities without addition of tank volumes, or design and construction of a new plant.

The process uses plastic biomass carriers that allow bacteria more space to grow and so consume biological contaminants more quickly.

Another Israeli wastewater business start-up is Emefcy with a process that reduces energy consumption for wastewater treatment by applying the principle of microbial fuel cells for direct production of electricity or hydrogen from wastewater. Potentially it is possible to produce more electricity than that required to clean water. Citing these is not to downgrade British innovation: Yorkshire Water, for example, embraced new practices and adopted a range of new technologies developed in close collaboration with partners including Balfour Beatty Utility Services, Morrison Construction, Laing O’Rourke, Crane, and H2O, to meet its aspiration for zero supply interruptions.

Last February, Yorkshire Water committed £2M a year of private sector ‘match funding’ to support an application by the Water Industry Forum (WIF) to the government’s Regional Growth Fund. The Forum plans a platform for water innovation in Yorkshire and, if successful, WIF will begin its initial programme of projects this September. It plans to follow this application with more to other sources of funding.

Contractors also play a major role in delivering innovatory technologies and privatisation of water utilities has meant they are more open to new ideas.

The extent to which the government response facilitates innovation with regulatory change, or even but less likely, with financial incentives, will be apparent when it publishes its white paper later this year. Promoting collaborative, targeted investment in early stage R&D is a key approach.

We have spent 20 years catching up on basic infrastructure repair: will the next 20 years see the technological revolution applied to UK water and waste?