Time to end the binary debate about utilities ownership

The recent turmoil surrounding the water sector has led to questions about how best to operate and finance the UK’s vital infrastructure. Yet focusing solely on the question of ownership or how private capital finances and manages infrastructure and utilities creates an “overly simplistic narrative”, according to Simon Ede and Tilmann Hensel-Roth of Charles River Associates. Writing for Utility Week the pair outline why the narrative needs to shift from binary debates about ownership to a more nuanced conversation about function, responsibility, and sustainable financing models.

The recent waves of attention around the water sector seem to have calmed a bit. As it is with many crises, it may be opportune to step back from the specifics of this case and consider the broader issue at stake (and not just for water but more broadly for the energy sector as well): What model is best suited for operating and financing our vital infrastructure, and who should fulfil what role?

It is not solely a question about ownership or how private capital finances and manages infrastructure and utilities. While that lends itself to captivating headlines, it is an overly simplistic narrative. It fundamentally concerns the complex interplay between all of the stakeholders.

The core issue that instigated the privatisation of the UK’s utility sector three decades ago remains unaltered. The sector is constrained by the need for substantial investment in ageing infrastructure amidst intensifying financial strains and mounting pressure to mitigate environmental impact.

Privatisation was viewed as a panacea that would unburden the government from the fiscal weight of funding infrastructure upgrades and expansions. By introducing private capital into the equation, the belief was that funding wouldn’t have to compete within the government budgetary wrangles or be curtailed by notorious “Treasury orthodoxy” that can impede capital expenditure.

The present tumult regarding the ownership of utilities, specifically water, calls into question the efficacy of private capital in spurring enhanced infrastructure investment, modernisation, and service quality improvement for consumers and the environment’s advantage. It is inherently impossible, however, to assert that public ownership would have yielded superior results. Analogous challenges in the past and present public sector provide a sufficient testament to this. The narrative needs to shift from binary debates about ownership to a more nuanced discourse about function, responsibility, and sustainable financing models for the future and how government and regulators contribute.

The ensuing dialogue must necessitate a more comprehensive exploration of how the total cost of energy and water—borne by consumers via taxation and utility bills—is directed, and what will be required to finance an energy transition for future generations.

We will need to determine how to best apportion the investment and cost, provide benefits to operators and investors, and introduce specific measures for different industry sectors.

Utility Week has recently published a landmark report in association with Charles River Associates which examines if utilities can reconcile the seemingly irreconcilable: sustainability, unprecedented levels of investment in infrastructure, and protection of consumers at a time when many are struggling. You can download it here.