Leader: Upstream water competition is already on its way

As National Grid warns that creating an independent system operator would damage investor confidence in the UK energy market (see news, p9), another proposal for a system operator is gaining far less attention. Deep within Ofwat’s forest of Water 2020 literature is the idea that a system operator, or group of regional or catchment-based system operators, may be necessary to oversee water networks as the value chain disaggregates and systems become more complex.

There’s been a lot of noise about retail competition in the water market – both about that which we know is happening, when the market opens to non-household competition a little less than a year from now, and that which we know is increasingly likely to happen, when it opens to household competition perhaps as little as four years hence. Much less has been said about impending competition in the upstream part of the business.

But make no mistake, it’s coming. The legislative framework for upstream competition is already in place, under the Water Act 2014, and Ofwat has made plain its intention to introduce market mechanisms for sludge treatment and disposal and water trading from the next price review.

Given the much bigger part of the water value chain that sits within the wholesale side of the business, the potential implications of these reforms are huge – arguably more profound than retail reform. Proposals for the transformation of the way water is abstracted, treated, distributed and sold deserve every bit as much attention and debate as those for the reform of the energy sector. Until now, it has suited the water sector to focus on retail competition, at least publicly, but with preparations for PR19 set to begin in earnest, the time has come for a bigger conversation.

• With industry heavyweights including former energy secretary Ed Davey and one-time RWE boss Volker Becker lined up behind community energy, it seems the current administration is the only one not convinced. The model, vague and poorly defined as it is, has been slowed down by a lacklustre government strategy with few spending commitments, in 2014, and a slew of subsidy cuts and policy shifts since then (see analysis, p12). Whitehall has a chance to put that right with the coming review of, and update to, the community energy strategy: real spending commitments would give the model real momentum.