New ways of thinking about bioresources in AMP7 Alison Fergusson 28 January 2020 Trust in water 1
Outline What is different in AMP7? How should the industry be preparing to get the most from bioresources in 2020-25? What are the opportunities for wider market engagement? Trust in water 2
Who we are Independent economic regulator of the water and sewerage sectors in England and Wales Our main statutory duties are: • to protect consumers; • enable efficient, well-run companies to finance their functions; and • ensure long-term resilience We take a long-term approach to our functions, contributing to sustainable development. We work within the framework of published Government (UK and Welsh) policy, including any specific guidance We are funded through the licence fees that the water companies pay each year (about £25 million a year) Trust in water 3
What is different in AMP7? Key elements of bioresources in the 2019 price review which is setting the way forward for the next five years: • Separate price control; • We have set each company’s allowed revenues on tonnes dry solids generated by wastewater treatment (£/TDS). Based on forecast amounts of sludge for 2020-2025; • We have set a forecasting incentive to promote better understanding, measurement and forecasting of the volume of sludge companies produce; • We reviewed companies’ bioresources strategies and approaches to the bioresources market as part of our initial assessment of business plans. Trust in water 4
What does the bioresources price control cover? Raw 1. Separate price control – means Sewage Raw Sewage management focus, revealing Raw sludge Used to power information on costs/revenues Export to dewatering liquors sludge treatment Wastewater power grid centre and no cross-subsidy between treatment works sewage treatment and sludge Used to power co- management. located CHP Engines or WwTW biomethane production 2. Companies will measure sludge Raw sludge dewatering production (TDS) through hubs instrumentation as far as possible Sludge Co-located treatment WwTWs centres 3. Any imported sludge, or other Return Liquors organic waste is outside the price Products for control. recycling/disposal Sludge transport, treatment, recycling and disposal Trust in water 5
Is the industry prepared? As part of the early assessment of plans companies submitted to us in September 2018, we asked the following question: To what extent does the company have a well evidenced long-term strategy for delivering bioresources services, integrating an assessment of the value from the delivery of bioresources services by third parties for the 2020-25 period and over the longer term? We assessed companies’ business plans across two broad areas: 1. the robustness of their data to ensure that we could set the bioresources price control appropriately; and 2. how well companies had explored trading and other market approaches in developing their strategy for bioresources services. We graded companies highly where they addressed both of these broad areas well. Many companies fell short of providing high quality plans with robust data and an integrated strategy for using third party delivery of treatment and transport of sludge. Some companies provided robust forecast information and supporting evidence, but provided insufficient evidence of engagement with third parties or opportunities for trades. Other companies performed better in providing a robust sludge strategy but fell short of providing robust and well evidenced data. Trust in water 6
Initial assessment of company plans United Utilities Anglian Water Northumbrian Thames Water Wessex Water Severn Trent Welsh Water South West Yorkshire Southern Water Water Water Water Water Assessment B C C C C C C C C C Grade Common Themes 1. Many companies are considering the use of third parties for high-value services. 2. Some clear plans to use markets with projects up to 4% of total sludge production. 3. Some plans describe significant volumes being traded, but the forecast numbers do not match the description. 4. Level of trading is variable across companies, with short term resilience trades more common and longer term trades still at early stages of exploration. 5. The level of detail on approaches to third party engagement was limited in most cases. 6. How profits from using appointed assets for non-appointed business will be shared with customers was missing from nearly all companies. 7. General lack of consideration of risks of using appointed assets for non-appointed business or risks from use of third party services. 8. Approaches put forward to achieve efficiencies were mostly those you would expect of a well functioning asset management company. 9. Mixed evidence regarding forecast sludge production. Evidence on how to improve its measurement was poor for most companies. 10.Poor evidence on the split of fixed and variable costs. 11.Some companies took a business as usual approach to their strategy. Trust in water 7
How should the industry prepare? • Be prepared for disruptive market activity! Expect something other than business as usual; • Collect good quality data on all interactions between bioresources and wastewater to demonstrate no cross subsidy; • Try innovative approaches to transporting, treating and recycling bioresources; • Seek out market opportunities. Trust in water 8
What are the opportunities for wider market engagement? • In our final determination we have made cost allowances to two companies who will soon need additional treatment capacity, not to build their own facilities but to explore and engage with the wider bioresources market. • 100% of sludge produced by sewage works serving >2000 people that are not already sludge treatment sites is within 45km of a commercial, industrial, integrated waste management or farm AD plant. • Environmental regulation means co-treatment needs EPR permits for treatment and recycling to land, but this may still be cost effective. • What about co-location? Shared facilities could yield efficiencies of scale. • Innovative approaches? Innovative technology? ADBA’s site map Trust in water 9
Information Companies are publishing information about the location, quantity and quality of the sludge they produce, as well as basic information about their sludge treatment centres. Trust in water 10
Summary Bioresources is a fast-moving and exciting area, with opportunities for wider organic waste sector to get involved, and innovation to bring real benefits to water companies and their customers. Water companies are publishing information to help interested parties identify market opportunities. Our 2019 price review seeks to promote the bioresources market. Our approach could speed the uptake of great innovation to get the most out of bioresources for customers and the environment. Trust in water 11
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