Opportunities for investment in the water sector

Ofwat, the water regulator, announced yesterday that competition was coming to the water sector.  As recession-proof industries go, water has to be hard to beat, so this is exciting news for private investors.  Initial indications are that household bills may be reduced by as little as £8 as consumers switch supplier but this is just a start and the prospect of a bundled utility bill for water, electricity and telephone is no longer a distant fantasy.[1]

tap and meter

Daily water supply in the UK amounts to 17bn litres; enough to fill 6,800 Olympic swimming pools, to use the preferred unit of modern bean counters.   Almost half a million kilometres of pipes are required to distribute this water to our population and the maintenance of this network is costly and complex.[1]  Increased competition in the sector would encourage innovation in important areas such as leak detection systems.  At present, as much as 20% of our potable water is lost through leakage (the figure is 25% for London) [2]and a further 5,500 litres are lost each year from dripping taps in the home.[3]

Under the new regulations, private companies will be able to buy water in bulk from suppliers and sell it on.  Efficient management could benefit water quality, consumer pockets and infrastructure maintenance.  The CEO of Ofwat, Cathryn Ross, welcomed the prospect of competition, describing the water companies as:

currently providing an analogue service in a digital age.

Competition is also proposed for the wastewater end of the business and, though sewage is not to everyone’s taste, where there’s muck, there’s brass. If 17bn litres of water are delivered to the UK consumer each day, 16bn litres are removed and treated in 9,000 dedicated plants. This process requires continuous and substantial investment as sterilisation techniques are deployed and improved. Each year, 15,000 tonnes of sludge are removed from wastewater in the UK and most of this is converted to biosolids suitable for composting, with a small percentage (0.7%) going to landfill and around 18% used for generating heat. [4]

Clearly, there are more opportunities here for private investors – both energy companies that are able to incorporate sludge into their thermal processes and those with new technologies that can treat that final element of sludge that is currently going to landfill.

[1] Ofwat.  Competition in residential retail water market could prevent customers being left behind.

[2] Financial Times.   UK water companies struggle to plug leakage rates.  November 3, 2013.

[3] Waterwise.

[4] Water UK.