Disruptive changes in water will ‘drive new business models’

Disruptive regulatory changes in the water sector, especially in the upstream and network segments, are inevitable and will “drive new business models”.

Further regulatory and legislative reform and willingness from companies and investors to explore new opportunities will be needed to facilitate the introduction of these new business models effectively, according to a report for Affinity Water, carried out by KPMG.

The report looked at “alternative models” that could help address challenges such as climate change, population growth, the need for increasing resilience, and ever-rising customer expectations.

It identified a range of alternative and more innovative business models and activities to support the reduction of water use.

These included demand aggregation – similar to that seen in the energy sector – where a retail company aggregates demand across a range of customers and provides demand reduction as a service to network companies.

The report also suggested multi-utility retail consolidation could occur through retailers offering water, wastewater and other utility services together. This could be extended to residential customers if that market becomes competitive.

Existing legal and regulatory changes have paved the way for new models including:

• abstraction licence trading
• upstream water entrants selling to incumbents and wholesale network operators
• upstream water entrants selling to new retailers
• water trading between incumbents
• markets in bio-resources
• operators taking direct ownership of assets and activities

Affinity Water chief executive Simon Cocks said: “Today’s report looks at what role companies like ours, together with key stakeholders, could play in helping to create the future. There are a range of possibilities.

“Some have been discussed previously and deserve further work and analysis – such as the introduction of independent system operators to improve efficiency in the use of resources – conversely some are completely new ideas for consideration.

“Our aim with this report is to try and bring these things together in order that we can start to really focus on the long term and, from our position as Affinity Water, support the continued success of the water sector.

“It is vital that we plan for the future now, so that we can be in the best shape possible, to serve future generations of customers.”