Thames revises smart meter ambition after Ofwat challenge

Ofwat’s final decision on extra investment in green recovery schemes on top of the PR19 packages has seen the total fall from £850 million in May’s draft announcement to £793 million today.

This is as a result of Thames Water – one of the five companies to submit green recovery plans – reducing the size of its smart metering programme from £242 million to £94 million. Ofwat’s final decision sees the company allocated £72 million to push forward its smart meter rollout in AMP7, down from the £146 million included in the draft.

Ofwat had raised concerns about the deliverability of the programme, saying Thames had failed to provide “meaningful evidence” its 2020-25 investment programme was on track.

Meanwhile, the other four companies that successfully submitted green recovery plans – Severn Trent, South Staffs South West and Unted Utilities – all saw an uplift in their agreed allowances.

While the £793 million of investment will be made between now and 2025, Ofwat stressed that in the majority of cases, customers would only start to pay for it after that point, when the regulator expects the economy to be in a stronger position.

As reported in May, Ofwat has also agreed that £1.9 billion of future planned environmental projects can 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 this investment during this and into the next AMP.

The schemes

South Staffs Water has been given permission to spend £17.6 million on a ceramic membrane-based water-filtration solution at its Hampton Loade treatment works. It will provide £9.7 million of the investment, with Severn Trent contributing the rest under existing agreements for this shared resource.

As well as contributing to the Hampton Loade scheme, Severn Trent will deliver six schemes under the green recovery programme, with investment totalling £566 million. These include projects to upgrade sewage treatment works, treat and reduce storm overflows and improve river quality monitoring. It will also invest in nature-based solutions to protect homes from flooding, create two new bathing rivers, repair and replace supply pipes and ramp up its smart metering programme.

South West will spend £82 million on five schemes focussed on catchment management, upgrading its Knapp Mill water treatment works, trialling ways to help consumers save water including smart metering, reducing flood risk and reducing harm from combined sewer overflows (CSOs).

United Utilities will invest £64 million to increase sewer capacity, develop nature-based solutions through partnership working and to investigate how to reduce harm from CSOs.

Thames’ allowance will be entirely directed towards the smart meter programme, with a focus on areas that currently use water from chalk streams.

Existing commitments must be met

Ofwat made it a condition of the green recovery scheme that companies prove they are on track with their investment plans and key performance commitments.

The regulator’s final decision says it considers Severn Trent, South Staffs and United Utilities to up to date in both areas. Some concern was expressed around South West’s performance on key commitments, including leakage and pollution incidents. The regulator decided therefore that some of the green recovery allowance would be dependent on meeting its commitments in these key areas in 2024/25.

The regulator deemed that Thames was not on track with either its investment programme or performance commitments for AMP7.

It added: “In both cases, the company has not provided board assurance that it is on track, nor any assurance around when it will be back on track. This raises concerns about the potential for the company to be unable to deliver its core commitments to customers while taking on additional green recovery investment.”

In response, Ofwat stressed that Thames’ green recovery allowance will be conditional on the company delivering its PR19 leakage and metering commitments.

Vital this translates into delivery

David Black, interim chief executive at Ofwat, said: “This huge package of investment will help the environment while providing a significant economic stimulus and offer thousands of extra jobs and training opportunities – delivering a boost when it’s needed most. I look forward to seeing the companies delivering on this ambition and bringing forward lasting environmental improvements for current and future generations.”

Environment Agency chair Emma Howard Boyd said: “This investment, which includes £158 million to help eliminate harm caused by storm overflows and trial the creation of two new bathing rivers, demonstrates a renewed commitment to reduce pollution incidents and improve water quality, but it is vital this translates into delivery.

“If it does the water sector will help the country move closer to a net zero and nature positive future that is more resilient to climate shocks like flood and drought. I look forward to seeing the results.”