Ofwat approves £850m green investment and £1.9bn for WINEP

The water regulator has approved plans from the sector to invest £2.8 billion in environmental projects to build back better including wastewater treatment projects, flood protection schemes, habitat and biodiversity protection, and to cut pollution.

Projects from Severn Trent Water, South Staffs Water, South West Water, Thames Water, and United Utilities had £850 million of fast-tracked investment authorised by Ofwat on top of their PR19 packages.

Last July Ofwat together with the Environment Agency, Drinking Water Inspectorate, CCW and Defra invited water companies to submit proposals that could be brought forward to this investment period to build back better and greener after the pandemic.

Reducing harm from storm overflows, which will be included in the upcoming Environment Bill, featured on proposals from three companies including reducing discharges and increased screening of sewage.

David Black, interim chief executive at Ofwat, said: “Today marks an important step in this country’s green economic recovery with the water sector stepping up to make a difference. As part of these measures, we will see a collective package worth £2.8 billion of new investment and accelerated expenditure to care for the environment, create jobs and support customers and communities to bounce back from the Covid-19 pandemic”

The projects

United Utilities will invest £63 million to increase sewer capacity, develop nature-based solutions through partnership working and to investigate how to reduce harm from storm overflows.

South West will invest more than £81 million, to upgrade its water treatment works at Knapp Mill, boost resilience by supporting water transfers; trial ways to help consumers save water including smart metering, reduce flood risk and to reduce harms from combined sewer overflows (CSOs).

The initiative will also focus on restoring peatland to reduce carbon emissions and work to create smarter, healthier homes to improve water efficiency and cut usage and bills.

Susan Davy, chief executive of parent company Pennon, said: “Our Green Recovery proposals are focused on opportunities to make an even bigger environmental and societal contribution to the South West for the longer term than we already do today.”

Thames Water is fast-tracking its smart metering programme by pouring up to £146 million into the rollout.

Severn Trent will bring forward £565 million of investment to enhance river quality by improving sewage treatment; to boost water supplies by enough to serve a city the size of Derby using low-carbon technologies. The company will create two bathing stretches of rivers in its catchment on the Leam and Teme; employ nature-based flood reduction techniques to Mansfield; improve the water quality of 500km of river in this AMP instead of AMP8.

Chief executive Liv Garfield said the projects will create 2,500 jobs across the Midlands. Garfield added: “Together with our Green Recovery programme, the investments we are making will play a significant role in providing communities with the confidence that the Midlands can bounce back better than before.”

South Staffs will commit £8 million to improving water quality while reducing carbon emissions. This will be a shared resource scheme with Severn Trent, which is also adding £7 million to the work that has potential to reduce the use of chemicals. The company will install a ceramic membrane-based water-filtration system to enhance water quality and reduce carbon emissions by around 1,000 tonnes a year.

Andy Willicot, managing director at South Staffs, said: “Once complete, this will be the largest deployment of ceramic membrane technology in the UK, and the first retrofit of its kind in an existing water treatment works. It will also help us play our part in delivering the water sector’s ambition to achieve net zero carbon emissions by 2030.”

Delivering for the future

Ofwat said the green recovery projects will trial innovations ahead of the next price review including projects to remove lead from customer supply pipes and gear up the use of nature-based solutions.

To qualify for extra funding the companies had to demonstrate they were on-track with pre-existing programmes and commitments; show the proposals were deliverable alongside current commitments without impeding financial resilience; and demonstrate that proposals would be affordable to billpayers.

The schemes demonstrate improvements for the environment but also gather evidence ahead of PR24 for the efficacy of approaches, which Ofwat suggested would be representative of what to expect in the next asset management period.

The projects predominantly focus on environmental enhancements but also public health improvements such as replacement of lead pipes.

Where company performance is likely to be improved during the period by these measures, Ofwat agreed with companies where commitments need to be changed or adjusted. Elsewhere the regulator has requested that performance is reported on by the participating companies to feed into the framework for PR24.

Companies had to demonstrate they were comfortable delivering above and beyond on their already ambitious PR19 business plans. The three-fast tracked companies have all been successful in doing so.

Extra mechanisms have been put in place to protect customers if Thames is not able to deliver the proposed extra smart meters. The company will be required to prove how it can go beyond the smart metering rollout in its PR19 settlement to qualify for the extra funding.

Where possible the schemes will have minimal impact on customer bills before 2025. Consumer support for projects was assessed by Ofwat and CCW before approval was granted.

WINEP approved

As well as the £850 million of new, green investment, Ofwat’s announcement included a further £1.9 billion of future planned environmental projects will be brought forward to contribute to a green recovery via the Water Industry National Environment Programme (WINEP) scheme.

Affinity, Anglian, Bristol, Northumbrian, Severn Trent, Southern, South Staffs, South West, Thames, Wessex and Yorkshire will collectively deliver £1.9 billion of improvements during this and into the next AMP.

The WINEP scheme was announced by the government in 2018 for projects that were proposed at PR19 but not funded. The projects were identified as likely to be needed, but not approved by the Environment Agency to proceed. As part of the green recovery process those companies have worked with the EA to get the green light for the 2020-25 period.

Next steps

A consultation will run until 9 June and Ofwat will issue its final decision in July.

Looking ahead to the next price review, a discussion document is due this month to kick off the intensive process with stakeholders to develop approaches to PR24. That will build upon engagement from last year that set out early views on the role of customers, engagement, and the key issues facing the sector.

Next year Ofwat shall publish its draft methodology in July 2022 and the final methodology in December.

Black was appointed interim chief executive following Rachel Fletcher’s departure to Octopus in April. Ofwat is in the midst of a wider leadership transition that began with four new non-executive directors joining in December and will see Jonson Cox step down in October on completion of his tenure. After Defra has appointed a replacement chair a permanent chief executive will be sought.