2010 has driest 6 months for 80 years

The Met Office has confirmed that the first half of the year were the driest first six months of any year since 1929. So now of course its started to rain!

Official figures released show that January to June had average rainfall of 356.8mm, making this period the second driest for 100 years. In 1929 275.7mm of rain was recorded in the first six months of the year.

The Met Office said the drier conditions have been caused by a lack of Atlantic weather systems, which usually cross the UK bringing bands of rain, especially to western regions.

Its ironic that one of the worst hit regions, the North West saw the worst flooding in Cumbria just last autumn. It is statistically unsound to try to extrapolate a long term trend from short term events like this but the gut feeling has to be that we are experiencing more extreme weather conditions. If you have not read already Nassim Taleb’s excellent book on Black Swans (the impact of the highly improbable) – it would be worth adding to your holiday reading list. 

Water competition threat recedes

Photo source: Ofwat

Ofwat is to take a step to step approach to introducing competition into the water sector the regulator confirmed at its briefing to the City of London earlier this week. Readers of this blog wont be surprised by this news  - it was predicted back in March. It confirms that the medium-term risk to financeability  that some analysts had feared has reduced.

“At this stage , we are focusing on those areas of the value chain that are least asset-intensive, and where there will be little impact on investors’ confidence or the cost of capital,” said Ofwat Chief Executive Regina Finn.

This pragmatic approach is to be welcomed. There is no appetite from consumers for competition although value for money is key. The current disparity in water bills across the country is becoming an increasingly  sensitive issue especially in the South West.

In the next step Ofwat will be building on the ideas in the Cave review and looking at the potential for upstream water reform in particular water abstraction licensing. The underlying problem for the regulator is that there is no actual value for water, the price consumers pay reflects what has been done to get water to the tap but not the value of water itself. Given the very high fixed costs and low marginal cost this is unsolvable. It is only in areas like water supply where marginal costs can help inform decisions. The marginal cost of developing new water supplies varies dramatically across the country from almost zero in areas of surplus water to over 100p /m3 in water stressed areas. Focusing on valuing water better in these areas can help the industry to make better decisions and take a sustainable approach. 

Increasing competition for biodegradable waste

Photo source: www.boston.com/bostonglobe/regional_editions/globe_west/west/pile%20of%

Competition for biodegradable waste is starting to increase. In June this year, it was announced that INEOS Bio had received an offer of a £7.3m grant towards £52m construction costs for the first commercial plant in Europe using its advanced BioEnergy Process Technology. According to Ineos Bio, 'The plant, to be located at the INEOS Seal Sands site in the Tees Valley, is designed to produce 24,000 tonnes per year (30 million litres) of carbon-neutral road transport fuel and generate more than 3MW of clean electricity for export from over 100,000 tonnes per year of biodegradable household and commercial waste. This would provide the biofuel requirement of around 250,000 vehicles per year running on E10* and the electricity needs of 6000 households.'

The process takes domestic waste, converts it into gases and then uses an anaerobic fermentation step to convert the gases into bio-ethanol. My understanding is that the process is highly efficient and has relatively low costs, meaning that this type of facility could be installed in any large population centre and provide an effective means of energy production, whilst eliminating costly landfill or waste incineration.

This move is to be welcomed but it does mean more competition for the anaerobic digesters being installed in the water industry. If this project is successful, which I expect to be the case, one can foresee the value of easily biodegradable waste is likely to increase and this will need to be factored into the economics.

White Paper on future of water industry announced

The announcement by Richard Benyon, Minister at DEFRA that the Government will produce a water white paper in Summer 2011 should be welcomed. A clear long term vision for the sector is absolutely vital with the increasing challenges of climate change, population growth and rising expectations.

Affordability of water has become a political issue (don’t make the mistake of underrating it), as highlighted by the Walker report. Its particularly vital in the South West where it is reaching a political crescendo. This also impacts on the contentious issue of water metering and the costs inherent in the massive investment required for the Thames Tideway project. Those who think that competition is likely to be the salvation are likely to be disappointed. Richard Benyon makes clear that the Cave review is integral to the process but there is no suggestion that the industry will be restructured just some tinkering around large water users and abstraction.

The other major issue is diffuse water pollution. The relatively easy point sources have largely been tackled. Now with the Water Framework Directive the emphasis is moving to the much more difficult diffuse pollution sources. This will require major investment. With the transformation in the number of people surfing (and all year round) and campaigns by papers like the Sunday Times the pressure to improve will only increase.

Central to resolving all these issues is clear political direction. The water industry needs to grasp the opportunity presented by the development of the White paper to get involved in the debate and shape the future of the industry.

Innovation essential for water industry to meet AMP5 targets

Photo source: Thames Water

Thames Water’s Interim Asset Director, Piers Clark stressed at an industry meeting last week the vital importance of innovation to the water companies if they are to achieve their targets to reduce costs while meeting the outputs over this current AMP period (2010-2015). The challenge highlighted was for the water industry to develop the capacity to mitigate extreme events while delivering services in a sustainable way and providing a cost efficient service.

News that total expenditure by the UK water companies on R & D is only £20m out of annual expenditure of about £8 billion – that’s less than 0.25% does not bode well. Further virtually none of this money is spent on true research instead its all development activity with many water company R & D departments acting as gatekeepers for the introduction of new ideas.

With, for example, Ofwat appointing an innovation manager and clear board level pronouncements there is starting to be recognition of the importance of innovation. However the universal view of suppliers listening to Thames Water last week was that there is a huge gap between the desire by water companies to be innovative and the reality on the ground.

As this blog highlighted back in March a real transformation is urgently needed. The water companies need to start by really valuing innovation and being prepared to ensure suppliers are adequately rewarded to encourage the development of new approaches.

Environment Agency’s approach to tackling diffuse water pollution not working

Photo source: www.nsw.org.au

A report issued this week by the National Audit Office claims that the Environment Agency’s approach to tackling diffuse water pollution has not proved value for money and worse that the annual expenditure of £8m has had little impact.

With only 26% of rivers and lakes meeting the required water standards set out in the European Water Framework Directive there is a lot to be done to tackle this complex problem. If the European Commission does not agree a lower target the UK could be exposed to considerable financial penalties if the 2027 deadline can not be met.

Identifying diffuse pollution sources is undoubtedly difficult and does require good detective work. New technology like Envrogene’s DNA tracing service can cost effectively pinpoint the source. But with the majority of farmers considering their activity has no impact on diffuse pollution its clear there is a long way to go. A more proactive stance is needed with hard detective work up front to identify the culprits. Much more innovation and good engineering practice is needed if a real difference is to be made.