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Tailored bioresources efficiency challenges could be introduced at PR24, Ofwat has proposed, as it builds on the introduction of a dedicated price control for sludge at PR19.
The regulator launched a review into the bioresources market last year, which identified two main areas to take forward – better targeted cost assessment and using a market-based approach to setting costs and revenues.
Bioresources activities comprise around £3 billion (6%) of companies’ allowed revenue for the current 2020-25 period. If supported further, Ofwat said the by-products could generate greater economic and environmental value. The separate price control meant companies now receive revenue from bills to treat bioresources and are incentivised to find the most efficient way to process them with the companies’ own or contracted facilities.
Ofwat’s review identified regulatory, economic, technical and cultural barriers to the market reaching its potential, which the regulator said would require a collaborative approach to overcome.
It said the trading of sludge for treatment remains “very low and falling” but transport and disposal see reasonable levels of competition.
The regulator proposed creating a market-based, customer-orientated approach to setting costs. This would be based on a broader set of costs; an average revenue control, similar to a gate price; considering more costs together in a single assessment; and introducing regulatory protection for different categories of costs.
The regulator said it would request data from wastewater companies as part of annual regulatory reporting relating to cost allocation, particularly of sludge liquors and energy generation.
Ofwat’s PR19 bioresources strategy entailed introducing stronger incentives, regulatory enablers, monitoring and evaluation, and greater collaboration.
Generating value from by-products in the wastewater processing sector has been highlighted as a key opportunity for the industry and society. Efforts to drive down greenhouse gas emissions from sewage treatment have shown sludge treatment and storage contribute significantly to process emissions at plants.
A consultation on the proposed changes will run to 10 February.
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