Towards flexibility - can utilities reinvent themselves?

27.03.2012

A ′greener′ future for water – adapting to change and customer demand.

(20mins presentation)

Introduction
Good morning ladies and gentlemen. I was invited here today to talk about “A greener future for water – adapting to climate change and customer demand” and I would like to do this by sharing with you my thoughts on the challenges ahead for the industry, propose some options and provide examples of how we are taking an innovative approach to finding solutions.

Firstly, I would like to say to such a key gathering is that I’m proud to work in the water industry. This is an industry that delivers vital services to communities and businesses 24/7 – 365 days a year sometimes in very challenging and difficult circumstances.

I represent the water industry on the Government’s Green Economy Council, which was set up to look at how industry and Government can work together to help business rise to the low carbon challenge, and my thoughts, to some degree, are as a result of my involvement.

The industry, and from my own experience at Northumbrian Water, is populated by people with a record of adapting to change and bringing innovation to the work that we do, and founded on a strong belief that we are here to serve our communities and the environment in which they live. This is evident in how we are adapting to the impacts of the changing climate, in the way we are serving our customers, and in our working in partnership with others.

Climate and the challenges ahead
Climate change is clearly having a major impact on the industry in many different ways, from managing peak water demand with lessening resources through to addressing increasing rates of pipe bursts and lower river flows, the industry has a range of challenges to face over the coming decades. The challenges posed are critical risks to our business – we use lots of energy to treat and pump water and to take it away and clean it, and therefore we must innovate to find cheaper, sustainable and more environmentally sensitive ways to operate.

Research has highlighted that increasing rainfall intensity is the most significant short term threat that we will face as a result of the changing climate. And with winter rainfall expected to increase over the century, along with a likely 20% rise in the intensity of storm events by 2080, ensuring that drainage and particularly sewerage systems can deal with the amount of run-off is an especially important issue.

Another key challenge for the industry is, water resource management, given the prolonged period of dry conditions experienced in and around the south east, with the introduction of temporary restrictions from next week in those areas. These issues feel very front of mind right now but, let’s not lose sight of the fact that, until recently it has felt that most of the time we have been in the position of being able to “take the availability of water largely for granted”. Consider also that with the predicted increase in population to 73m by 2035 in the UK, the challenge to providing sustainable solutions, managing customers expectations and maintaining an affordable bill is a significant one.

We have a role to play to ensure that we maintain our network to reduce waste – customers rightly expect that of us but there is also the question that are we capturing water in times of plenty and use it in times of need? We are making a major investment in the Abberton Scheme, to help secure water resources in the Essex area for the long term future. Construction work to raise the wall of the existing reservoir is currently underway on the £150 million project, which will increase the capacity of Abberton Reservoir near Colchester by 58%. This need is even more pronounced with most of the Climate Change scenarios.

Partnership & collaboration
Our Victorian forefathers laid a very sensible infrastructure that efficiently captured water and used gravity to supply everywhere. Although those Victorians did some fantastic works, in those days your waste ended up in the sea and rivers of the UK. Nowadays you send it to us and we return it to the environment without harming that environment. The improvements as a result can be seen all around us in the surroundings in which we live and in the quality of our drinking waters.

But there clearly is an issue right now and, with climate change there is greater uncertainty in the future. The south east is under significant water resource pressure. So what’s the best solution to this? In my opinion the answer to this is the ‘C’ word and that ‘C’ word is collaboration.

Our experts need to look at the whole supply/demand balance holistically and come up with the most cost efficient, environmentally sound solution for the region possibly even the country, rather than in isolation for a local solution. We need to understand what the potential long term issues are, with reference to joined up water resources management plans and also what degree of resilience is affordable within that solution. We all know that moving heavy water long distances can’t be a long term sustainable solution.

So how can we use our combined expertise to come up with the best outcome. Given the uncertainty of how drought occurs, i.e. the north west last year, this year the south east - but in a very localised way – a system that gives security of supply most of the foreseen time with flexibility in extremes must be the way forward. Our regulator can support this simply by not incentivising either a Capex or an Opex solution and allowing companies to work in a joined up way to get the best overall outcome. Such a collaborative way forward will allow us also to work in partnership with the Environment Agency and Natural England to ensure that the wider environmental impact is fully understood, the carbon impact is reduced as far as possible and that customers are not asked to bear the cost of excessive redundancy in the system in order to protect individual or contracted provision.

Innovation
So the dual challenge climate change presents is to minimise the need to adapt by reducing the reliance on fossil fuels and to manage the predicted changes that will affect both the availability of water resources and the demand on our service.

One of the predecessor companies of Northumbrian Water was set up by amongst others William Armstrong, the notable Victorian entrepreneur. Little did he know that the services that he developed would grow to the extent they have, particularly in the last 20 years. The energy used to take away and clean your waste has grown exponentially and the water industry is now one of the top energy users in the UK. If we are going to reduce carbon emissions, adapt to changes in climate and the demands of our customers, we need to get back to the innovation of those Victorians.

Armstrong was ahead of his time and advocated the use of renewable energy. As well as advocating the use of hydroelectricity, he also supported solar power, stating that the solar energy received by 1-acre (4,000 m2) in tropical areas would "exert the amazing power of 4000 horses acting for nearly nine hours every day”.

So how does a modern water company live up to those ideas of long ago - at Northumbrian Water we have set an ambitious target to reduce our emissions by 35% by 2020. Our carbon management plan includes energy efficiency, renewable energy generation, transport and water efficiency and supports our activities to help us adapt to a changing climate.

We are leading the way with our innovative approach and I would like to share some of these projects with you and consider some of the issues which can impact on what is long term planning to make our business sustainable and flexible enough to deal with climate change and customer demands.

By far the biggest change we are making to meet these targets is by increasing our use of renewable energy with a target to generate more than 20% of our needs by renewable means by 2015. The major investment is in ‘power from poo’ and I can’t think of a better way to put it – the ultimate recycling process!

We use waste to generate power and the sludge we collect goes through a process called Advanced Anaerobic Digestion and on Teesside, we have the biggest plant in the UK. We are building another one on Tyneside. It is a huge investment of nearly £70 million, but the payback makes it worthwhile and the environmental impact is huge. On completion of the work at Tyneside later in this year we will be producing around 80,000 MWh of renewable electricity, or 40% of the energy needs for the entire cycle of pumping and treatment of wastewater in the company.

This investment in Advanced Anaerobic Digestion will mean that the entire sewage sludge production of the Company will be used to produce energy - no other UK water company uses 100% of its sludge production to generate power.

The exciting bit is how we extend this with co-digestion, in other words taking in other waste streams. This requires some careful work by us but also partnership with others and some quite different thinking-for example, how do we collect food waste from households. There are big opportunities to work with partners in the commercial and public sectors to develop co-digestion solutions.

However, we are not remaining content with the energy we are getting from our ‘poo’ at the moment. We are researching with Newcastle University ways to extract more of the energy present in sewage. This will help lower the energy inputs and towards a position that one day the wastewater service might be carbon neutral if not energy positive.

For a number of years, we have also had the largest hydro electric plant in England at Kielder producing enough energy for a small town. Again we have tried to extend that capability at other sites and recently opened a new plant at Selset reservoir in County Durham. So we still follow what Armstrong was doing 150 years ago but now we know that we can impact on carbon as well. We have an ambitious plan to construct more hydros, not only at the reservoirs but also, actually, installing plants directly in the drinking water network.

The AAD and hydro plants require some planning and we are driven by a carbon management plan - if Britain is to achieve its target then that degree of planning is needed not as an individual effort but as a coordinated and cohesive plan involving many partners. Sometimes you cannot just leave it to the market.

As a result of these projects we are already seeing the initial results of our emissions reduction plan, with a fall in emissions of 18% in just three years. But it is not the only example of our ambition, creativity and innovation.

In Essex, at our Hanningfield site we are starting to develop the world’s largest reed bed to treat water treatment sludge. This is a world first for potable water sludge; which requires minimal operation and energy resource; whilst attracting insects and birdlife to the area.

It is not just using innovation to treat waste products that drive our changes. With real-time network control (Aquadapt), we are implementing a real time water network control system to optimise cost of treatment and distribution of water to our customers through better management of resources, treatment works, reservoir levels and pumping stations. This optimal management of our networks will reduce energy use and carbon emissions - also industry leading as well as a UK and European first.

Customer – working in partnership

It’s an industry that most people agree does a good job, in independent surveys it typically scores higher in customer service than all the other utilities, but we are not complacent and it wants to do better. Certainly in NWL we benchmark ourselves much wider than the utility sector. But that said in essence it is a public service, delivered privately and most of our customers view it that way.

In research, our customers tell us that it’s important they feel we are a caring company. You need only read my “inbox” to see how our customers don’t view us as a product or service supplier in the ‘high street’ sense, they expect us to have a ‘social or moral’ context too, in that respect we are more akin to health, education or environment in their expectation of us to ‘do the right thing’ and to be engaged with the communities we serve. Rightly so in my opinion.

And because of that strong expectation of ‘public service’, it’s important that as we move the industry forward, there is a strong understanding that there is a wider ‘moral contract’ in play. If we are all to maintain our ‘legitimacy’, a commonly used phrase, then we need to recognise that contract, and ensure that whatever changes we make are seen as adding value in a customer focused, socially responsible, multi-stakeholder environment.

In the North East we work in partnership with chemical and process industries on Teesside. Using the infrastructure networks available to NW we work to put an economic value on the waste from these large plants, helping them to connect with other parts of their sector who can use the waste from one company as a “raw material” in their manufacturing process. Making this connectivity between large businesses means waste becomes a valuable resource.

We also work with hundreds of SMEs helping them to reduce water usage and reduce the energy demands on our systems. It is important that we help business/customers understand the link between energy use and water use – in homes two thirds of energy used is to heat water. If we can support people to use less water, they use less energy and there is the potential to reduce two bills. We see this as an important part of our role as a water company.

However, houses do not use water, people do! And if we are to protect and adapt to the inevitable change in the future we need as a company and as customers to change our behaviours and attitude to the use of our precious resource.

As is the need to continue to create stronger engagement and collaboration with customers, businesses and the communities that we serve. At NWL we listen to our customers views, from regular research with our customers in focus groups to challenge groups , where representatives of the wider communities scrutinise our plans, providing challenge and advice on the direction of travel of NWL. This level of engagement helps to develop the ‘moral capital’, within the contract with our customers, to pursue its goals and create the support within communities as the company looks to evolve.

Challenge from Government to industry

I could not let this opportunity pass without making reference to the water white paper. The publication of the water white paper is welcome and provides the industry the opportunity to work with Government and other stakeholders on policy that supports innovative and incentivised approaches to solutions that can mitigate the impact of climate change and help customers manage their demand.

The Government, in what it chose to give emphasis to, or ‘word count’ to in its paper is important and deliberate and we should take note. It chose to signal that its greatest priorities were for us to focus all our efforts on delivering resilient and sustainable water and waste water services (adapting to climate and environmental challenges) in a way that remains affordable to customers in the long term.

However it is worth recognising that the role of a water company goes beyond the supply of water and removal of waste water. Even beyond the vital protection of public health, it is also an enabler to support the development of a vibrant economy. Post industrial rivers have been transformed from polluted waterways into vibrant water courses at the heart of our cities. It is the fact that we have cleaned the rivers that has turned them from dead, smelly polluted conduits into clean and attractive places. Our architects have seen this potential, transforming our city centres as a result, contributing to the economic regeneration of cities such as Newcastle.

The Government has a role to play if it truly wants to see a ‘Green Economy’. Typically, businesses in this area are having to make sure footed and long term decisions. Government needs to help by giving a stable and consistent policy and a regulatory platform for investment. Changes like those around the Carbon Reduction Commitment last year do not help that confidence and trying to incentivise the solution through competition is likely to result in protection of contractual positions.

Having said that, it won’t necessarily stop our drive to lead the way and as companies become more innovative, it requires regulators and Government to become more innovative too!

Summary

The title of the session was can utilities reinvent themselves? If my experience in my company is anything to go by then yes we can! But it needs proper planning, consistent Government, proper incentives, a collaborative approach and a passion to do it.

So in summing up, my message would be - this is a great industry that I’m proud to serve. It is ambitious to improve and recognises the need to adapt to change. It’s a customer service industry where its customers expect it to provide good value for money, but that’s not all they expect. They also expect a social conscience, environmental custodianship and responsible behaviour and a sense of public service. And all of us are bound up in that partnership.

If we can move forward with a strong sense of balance, trust and clarity of role then there is no reason why everyone’s expectations can’t be ‘legitimately’ met.

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