The UK water sector has benefitted from high levels of investment in recent years to improve water quality but has lacked new technology in water treatment and supply, or in demand management, the institution said.
A recent survey carried out by CIWEM revealed that 87% of people asked supported a “comprehensive review” of the financial regulation of water to encourage innovation, incentivize water conservation, integrate water management with environmental policy and legislation and to address future challenges.
Currently, innovation is not supported effectively and the take-up of innovation by the industry in a key concern, the respondents said.
CIWEM said the nature of water regulation and the industry’s structure make it “difficult” for industry competition and for new processes to be approved and implemented.
Justin Taberham, director of policy at CIWEM, said: “It is clear that current financial regulation models for the water industry are ill equipped to deal with issues that have come to the fore, including sustainability, climate change, carbon accounting and resource efficiency. Current regulatory models are not seen as fit for purpose and have significant flaws including inflexibility and a ‘boom and bust’ business and asset management cycle. They do not encourage engagement with the public, stall innovation and are price rather than sustainability driven.”
Furthermore, the organisation said that increased competition will only add to the current problems of companies not charging customers for the “true value of water”.
CIWEM added that it would also like to see Ofwat, the water services regulation authority, given responsibilities for promoting the delivery of integrated water, wastewater and environmental services, not just water and wastewater services.
Responding to the survey Ofwat said any changes to regulation would have to be done sustainably.
Speaking to Water & Wastewater International (WWi), Noel Wheatley, head of environment and water quality at Ofwat, said: “Regulation has delivered a lot over the last 20 years – 35% reduction in leakage, improved compliance with environmental standards, excellent quality drinking water and customer bills a third lower than they would otherwise have been. But we need to make sure that our approach to regulation can meet the challenge of sustainability in the face of climate change, population pressures, environmental standards and customer expectations.”
Ofwat added that is would be shortly announcing a “fundamental review” of water sector organisation.
The Department for Environment, Food and Rural Affairs (Defra) told WWi that it is “currently considering” recommendations made in the Cave Review, published last year.
Published in April 2009, this independent review of competition and innovation in water markets called for environmental regulator, the Environment Agency, to be given new powers by the UK government to tackle over-abstraction and to facilitate the trading of abstraction and discharge licenses.
At the time Professor Martin Cave, who led the review, said the proposed changes could benefit the economy by £2.5 billion over 30 years.
Water UK, which represents UK’s water and wastewater utilities, said it agreed with some of the changes recommended by CIWEM but warned these would have to implemented sensibly.
Barrie Clarke, director of communications at Water UK, told WWi: “In a sense we would agree with CIWEM, but it’s a question of emphasis. Let’s not downgrade the importance of keeping a healthy water market – we have to find the right way to make improvements.”
He added: “Our current system has served the country well for two decades and led to an enormous amount of environmental improvement but we also feel there are new challenges to face. We have to bear in mind there are a number of issues and a number of significant social questions to ask. It’s a matter of affordability – the industry is going to have to continue to invest but the question is where this money is going to come from?”
Going forward, CIWEM urged the government to encourage greater innovation by increasing incentives for outperformance and addressing the potential bias to capital expenditure.
It said that companies who over-perform against their environmental targets should not be penalised for failing to meet their economic targets.
Other changes called for included the development of a research and development body to ensure an innovative, integrated approach to water management; improved co-ordination across regulators and investigation into more flexible approaches to regulation by looking to examples of good practice in other places (e.g. Australia) and in other sectors.
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