Ofwat’s draft determinations: how will water companies respond?

Dr David Bradley, Technical Director, Water Science & Management, APEM Group

The headline outcome is, quite predictably and understandably, that Ofwat is expecting water companies to deliver their plans more efficiently to the tune of £88bn, rather than the £96bn that the companies asked for.

The water industry was quick to react. Water UK, the water industry trade association, saw a half-empty glass, stating Ofwat’s decision is “the biggest ever cut in investment by Ofwat”. It warns that Ofwat will be “repeating the mistakes of the past” and “as a direct result, more housing will be blocked, the recovery of our rivers will be slower and we will fail to deal with the water shortages we know are coming.” Ofwat led with the other perspective, claiming this is the biggest investment programme ever for the water sector with investment up from £59bn in AMP7.

The reaction was equally polarised outside of the water industry with clean water campaigners, including the Angling Trust, stating that Ofwat doesn’t understand the serious challenges the freshwater environment faces, nor the levels of investment needed to fix it. On the other hand, the Consumer Council for Water argues that Ofwat’s cuts haven’t gone far enough and “people will feel upset and anxious at water bill rises”.

Emphasis on environmental outcomes

Whichever way you look at it, Ofwat still expects the same level of ambition for environmental outcomes as put forward by the water companies and has not cut any delivery lines from the Water Industry National Environmental Programme (WINEP). It does want more for less and has imposed a nearly £7bn cost challenge on WINEP delivery. Some water companies we’ve spoken to say that these cuts have gone way too far to allow their already stripped-back environmental plans to be delivered to the demands of the regulators and general public. We expect many water companies will vigorously challenge Ofwat’s WINEP programme cuts over the coming months.

The new Environment Secretary, Steve Reed, shared the view that we now need solutions that are seen as equitable by all when talking to water company CEOs last week. He previously stated that his top priority at Defra is “cleaning up Britain’s rivers, lakes and seas” at the same time as the Labour Government announced one of its first policy commitments is to remove planning restrictions and build 1.5 million new houses in five years. Delivering on these growth targets will put more pressure on the bursting sewerage system and water supply, which will need to be balanced with the level of investment that will be given to solve these challenges based on what Ofwat finally determines.

Delivering on these growth and environmental commitments is not just about financial resources. The whole water sector (water companies, supply chain and regulators) faces a huge problem about where the increased staff resources and expertise will come from. This is further compounded by the truncated timescale of the WINEP, that needs to be completed by the end of 2027 in order to meet the Environment Agency’s deadline.

APEM Group provides the largest resource of specialist water environment staff in the UK supply chain. We have developed novel methods and tools for tackling some of the biggest challenges in AMP8, such as our 2024 Water Industry Awards winning Pollution Mitigation Initiative of the Year system for real-time river water quality monitoring and reporting, and development of hydro-ecological models to provide a scientific basis for abstraction regulation.

AMP8 will have a strong emphasis on the natural environment – both looking to improve its state and looking to nature for delivering solutions to reducing storm overflows and water shortages with the required cost efficiencies.

APEM Group enables the water industry to be transparent, accountable and precise in the reporting, management and monitoring of their environmental impact. Our nature-positive solutions are helping water companies make steps towards restoring the natural environment and responding to financial, resourcing and public pressures.

For more information about how APEM Group can provide innovative solutions to the challenges faced by the water industry, contact Dave Bradley here.

About APEM Group

With locations across the globe, APEM Group provide independent environmental consultancy and expert scientific advice to a wide range of industries including water, renewables, infrastructure, power and utilities, ports and harbours as well as to regulators and governments around the world.

We provide a range of services to clients including our world leading digital aerial wildlife surveys, environmental impact assessments and approvals, marine, water & terrestrial ecology, geospatial insights, shipping and navigational risk assessments, heritage advice and landscape visualisation.