Market view: The ascendancy of data in the UK water industry

Efficiency, customer service and competition are among water companies’ greatest challenges.

Although the companies’ responses differ data is a common thread of many strategies: more data, better data and most importantly better data analysis to allow better informed decisions.

To meet water quality and environmental standards, and customer service levels set by regulators – at cost acceptable to the customer – water companies assets need to be operated and maintained with ever increasing efficiency.

This is at a time when climate and demographic changes are affecting assets’ resilience and ability to meet demand. South east England, for example, now has less water available per person than Sudan or Syria. These pressures are exacerbated by static revenue, in real terms, and – in most cases – the need to generate value for shareholders or owners.

To attain the required levels of efficiency, water companies need to understand, in greater detail than ever before, how their assets are performing and be able to analyse scenarios into the future. This can be achieved by smart water programmes.

Water and wastewater systems comprise thousands of data-generating components. Intelligent equipment can gather and process data, often at the component level. Smart infrastructure is the combining of intelligent equipment with data analytics, leading to actionable information.

For example smart infrastructure allows performance data for single pieces of equipment, or entire systems, to be combined with external data such as energy tariff information, to identify the lowest cost of operation providing greater opportunities to optimise on the basis of actionable information such as true cost of supply.

The ability to obtain and analyse data from individual pieces of equipment and entire treatment and carriage systems allows water companies to assess with ever greater accuracy the capacity and resilience of their assets. This, combined with the ability to historise data at ever lower costs, allows the implementation of smart programmes that use data in a predictive manner to help optimise asset performance and minimise risk.

The real-time insights, and intelligent decision making, smart programmes support has great potential to help water companies move away from capex/opex-based assessments and reporting of their activities, and towards totex-based assessments. This is vital as the move to totex reporting was a requirement of Ofwat’s 2015 price review. It is a sign of data’s ascendancy in water companies’ priorities that Thames Water appointed IBM, in addition to consulting engineers and construction companies, as a delivery partner for its 2015-2020 programme.

Improving customer service is another area in which smart infrastructure will have an increasing role. Ofwat’s Service Incentive Mechanism (SIM) assesses the service water companies provide customers against a range of qualitative and quantitative measures. The resulting SIM scores have a direct impact on the amount of money Ofwat allows water companies to charge their customers.

Qualitative measures assessed under the SIM include communication and customer engagement. Quantitative measures include the speed with which water companies respond to customer contacts, the number of customer complaints, and the speed with which they are resolved. To give context, Thames Water has circa 80,000 customer contacts per week. Ofwat will sample 200 of these as part of its SIM assessment.

The importance of SIM scores means water companies need to plan and react in ways that will reduce the number of customer contacts. Targeting network maintenance on high-risk areas, in which interrupted supplies will generate the most complaints, for example. Smart infrastructure can help water companies identify high-risk areas, understand the condition of the assets that serve them, and plan maintenance accordingly.

Understanding asset condition in detail will also help prioritise maintenance and ensure it is executed in a lean, efficient manner. Maintenance teams arrive onsite prepared to execute planned work, rather than having to assess asset condition then prepare maintenance work reactively.

In 2020 English and Welsh water companies’ domestic customers may, for the first time, have the opportunity to switch their supplier. The need for water companies to compete to retain, or attract customers – by providing a high level of customer service for instance – will be another stimulus for smart programmes.

Water companies will also need to understand their transactional cost base – the unit cost of everything they do – in order to structure their business for the era of competition. This is another area in which the understanding of assets afforded by smart programmes will be vital.

Ahead of wholesale competition, however, water companies in England and Wales will be able to compete for retail customers from 2017. Ofwat believes 1.2 million businesses will be able to choose their water and wastewater services provider following the introduction of retail competition.

As well as adding impetus to the drive for efficiencies and improved customer service, retail competition is ushering in the most significant structural changes since privatisation. Companies are deciding whether to continue offering the services they provide currently, reduce their offering, or invest or partner to secure new revenues in their own operating regions, or those of other water companies.

The extent to which these processes will be amplified with the introduction of domestic competition is unclear. We can be sure, however, that the role of smart programmes will only grow.