If the opening up of the UK’s water retail market next year is all about giving business customers more choice over where and how they source their water, then the ultimate manifestation of the new regime comes with the ability for non-household customers to supply themselves.
From April 2017, companies based in England will get to choose their water retailer for both supply and sewerage for the very first time. But the regulatory shake-up will also give them a chance to apply for a self-supply licence to take more control over their own water use and treatment – and how that impacts on the bottom line.
A self-supply licence enables any business using more than 50 million litres of water a year to buy their water and wastewater services at the wholesale price – a protected price that all utility retailers pay. Ofwat, the UK’s water regulator, has made sure the wholesale contract of a self-supply licensee is on the same terms as all other retailers to ensure a level-playing field in the new, open market.
Essentially, a company would take on the role and responsibility for the retail functions of a traditional water seller, taking on billing, meter reading, customer inquiries, debt management and finding water efficiency savings. This becomes attractive when a business has, say, a main production facility, a secondary finishing plant close by and an office block further up the road, all using water and wastewater services to varying degrees.
Self-suppliers are only able to supply the premises that are associated with the company. They are not allowed to supply retail services to third-party sites, such as supplying other business customers unrelated to that business – a point made clear by Ofwat’s recent consultation on the matter as it thrashed out the details of the licence conditions.
“The main benefit is that the supplier pays the price that retailers pay to the water company and not the margin added by the retailers in the open water market,” says Lois Vallely from Utility Week.
Companies would hold a water supply and sewerage licence (WSSL), granted by Ofwat at a cost of £5,250, allowing them to use the supply system of an appointed water or sewerage company.
On paper, obtaining a self-supply licence might seem like a no-brainer; a chance to save money and avoid unnecessary servicing costs is something businesses rarely pass up. According to think-tank Policy Exchange, the new UK market presents a range of options for multi-site businesses to deal with just one supplier for their water and wastewater services, which can drastically reduce paperwork and administration costs.
It points to one such business customer who receives more than 4,000 paper bills a year for its range of different premises. Consolidating to one supplier could save the company between £80,000 and £200,000 a year in reduced admin costs.
For similarly large, multi-site retailers, the same sort of cost-savings might easily be achieved through self-supply, says Sam Williams, a director at Economic Insight, who specialises in helping businesses ready themselves for changes in regulation and competition policy. “Water retailing is the simplest part of the supply chain. If you’re a multi-site business, you already have people going out to those sites on a regular basis, people that you could get to read the water meters, so why would you pay a water company to do that?” he asks.
“Perhaps more importantly, by taking on the retail role yourself, you will also have more opportunity to undertake analysis of your water consumption in a way that enables you to find efficiencies in your own business processes, but also ways to reduce your consumption more easily.”
Why there’s little uptake
However, with the retail element of a water supply chain accounting for just 10 per cent of a total bill, businesses will still need some convincing. Despite Ofwat’s best efforts to relay the benefits of self-supply, there have been relatively few takers so far. By April this year, 17 WSSL licence applications had been received, none of which were from commercial organisations looking to self-supply.
“I’m not surprised few applications have been made, but it may still happen,” predicts Mr Williams. “At a superficial level, the retail element might not appear to present enough pound-savings on the table. But if companies are able to find savings on the other 90 per cent of their bill, because savings have been identified at the retail end of the chain, that will start to change materiality of it.”
Businesses need to be convinced there is enough money to be saved
It is an argument that has already been made to Scottish business. North of the border, all public sector, non-profit and business customers are eligible to apply for a self-supply licence, and many have realised wholesale water efficiency-savings. According to the economic regulator the Water Industry Commission for Scotland, wholesale charges fell at a faster rate than the default retail prices over the previous regulatory period, 2010 to 2015.
“Businesses need to be convinced there is enough money to be saved. That business case has been made in Scotland and people have bought into it. No doubt, over time, it will happen in England too,” says Mr Williams.
An open water market presents a wealth of opportunities for businesses to improve their bottom line by having more autonomy over how they use and pay for this precious resource. While it is not designed for every organisation, self-supply presents a useful and interesting mechanism in the broader, more complex water market coming to England very soon.