No cranes without drains

Investment in Northern Ireland's wastewater and drainage systems fell so far behind over the past six years that housing and industrial developments were stalled. As the country's water network awaits the regulator's verdict on spending plans for the next price control, its director of finance and regulation Ronan Larkin discusses the consequences of further underinvestment.

Northern Ireland’s largest reservoir Silent Valley was built 100 years ago to meet the needs of the growing population of Belfast following the industrial revolution, which saw a period of economic and social change.

At the time it was a visionary civil engineering project and a century later it remains a primary supply source for the capital city and surrounding counties. The reservoir is a symbol to the country’s water company of what infrastructure projects should be – to serve the needs of Northern Ireland now and in the future.

Northern Ireland Water published its 25-year strategy in 2019 to deliver world class water services in a way that supports society to meet the challenges of decarbonising and restoring biodiversity across the 21^st century. The strategy uses a multi-capitals approach and is based around integrating the needs of customers, the economy, nature, water and people.

The next price control period – PC21 – runs from 2021–27 and will deliver the first six years of that strategy.

During its current price control – PC15 – the company was restricted in its investment that it could not fund necessary capital expansion programmes to keep pace with development across the country. As a result, many of the sewerage networks and wastewater treatment plants are having to operate at or beyond their design capacity, limiting opportunities for new connections and constraining economic development in 116 towns and cities across Northern Ireland.

“Visiting a city and seeing lots of cranes is a sign of a vibrant growing city and something planners love to see,” says Ronan Larkin, director of finance and regulation at Northern Ireland Water.

“We think cranes are great but if you’re going to have cranes you have to invest in drains. We’re very supportive of development plans across Northern Ireland and we want to match the ambition with modern 21st century drainage and wastewater infrastructure for housing, industry and the natural environment.”

He says there is no reason why Northern Ireland should not have the same standard of water and wastewater infrastructure as other UK regions.

“It is vital that a sustained significant increase in investment must begin now and must be underpinned with a medium term funding package to support the delivery of vital infrastructure across the six years to 2027,” Larkin says.

The company has not shied away from talking about the dangers of underfunding and Larkin says the plans for this next price control period have widespread consumer and stakeholder support as people want to see infrastructure built that will serve the region throughout the 21st century.

At PC15 the guidance from the Department for Infrastructure, which is the sole shareholder of NI Water, was to design the business plan within a constrained capital investment budget that the company had to work within.

“This time we worked with stakeholders to take a different approach,” Larkin says. He explains no limit has been set by the department and the plan is based on requirements.

The cap at PC15 was £990 million; this time the magnitude is £2.2 billion, which Larkin says accurately reflects what the country needs in new and base infrastructure – particularly for wastewater treatment and drainage infrastructure.

In the greater Belfast area, NI Water has embarked on the £1 billion Living with Water programme to update drainage and sewerage infrastructure that requires investment to begin now and continue into PC27.

The company is awaiting the final determination in May for its PC21 plan, which will already be into the first year of the regulatory cycle but price tariffs will be agreed ahead of that date. A decision to accept or appeal the determination will be considered by the board in the summer.

Larkin says discussions with the Utility Regulator, which is responsible for regulating the electricity, gas, water and sewerage industries, have been going well and the regulator is supportive of the company’s objectives.

However, he admits there is still a significant gap between the company’s business plan and the regulator’s draft determination.

“We have no issue with a determination being challenging, however a determination must also be achievable if it is to work for customers. We feel there’s more work to be done,” he says. “For the final determination to be achievable, we will need to see significant change from the draft determination. Without that, we wouldn’t be able to deliver all that we need to for PC21.”

This includes spending for environmental protection and enhancement, fighting the impacts of climate change and decarbonising the business in line with the UK’s legislated 2050 net zero target.

Carbon reduction was built into the plan including expanding solar energy capacity, examining supporting renewable roll out as a generator of renewable energy and reducing the company’s carbon footprint. Larkin says the plan allows for utilising assets in different ways and engaging with landowners to work together to enhance the natural world, which aligns with approaches outlined by the National Infrastructure Commission.

“PC21 sets our ambition around that, but it must receive adequate funding,” Larkin adds. “If the final determination looks like the draft determination some of the company’s plans for tackling the effects of climate change won’t be achieved.”

This “greatly disappointing outcome” would leave the company and its customers exposed to physical and transition risks associated with climate change.

While the message is clear from the company’s side of what must be done, enacting the plan requires funding from its shareholder – the Department for Infrastructure, which along with the Northern Ireland Assembly & Executive, has the final say of how much money can be committed.

At PC15 the department and the NI Executive were not able to fund what was required and Larkin explains this remains a risk and underinvesting could further restrain economic development and damage the natural environment.

“There is a risk of underinvestment and we have to look at where that risk lies, does it get transferred to customers? The model should ensure that it doesn’t get transferred, but ultimately if the infrastructure can’t be fully invested in and the outcomes can’t be delivered the customers suffer – whether that’s reduced service today or deteriorating service over the short term.

“The risk lands on people who use and depend on the service. We are working with our shareholder to mitigate that risk as best as we can,” he says.

Larkin seems confident the open communication throughout the process between the company and the department mean there shouldn’t be any shocks  when the final determination is published.

Once the determination is published in May, the decision to accept or appeal will be made by the board in July.

“We are working with the department to make sure the capital funding goes in at year one to begin the capital programme with key suppliers. That’s a good news story for any aspiring regional economy and where we need to be.”