UK water companies will come under increased pressure for the next five-year Asset Management Programme (AMP6) to improve their relative efficiency while improving wastewater effluent quality. Regulators are driving this in the light of customers’ expectations and increased competition within the water industry.
Water companies face key strategic questions, such as totex and asset management, the need for frameworks and alliances, managing the supply chain, and whether to recruit technical capability in-house or outsource or co-source.
With AMP6, water regulator Ofwat confirms its move away from the “ticking regulatory boxes” approach of previous AMPs to focusing on value for money for customers.
This will see water companies trying to get the most out of their existing assets and find ways to minimise total operating costs.
This shift in emphasis leads to water companies looking for different skill sets from their supply chains – expertise that will help them make more of existing assets.
The focus on long-term thinking is also being reflected in how some water companies are looking to procure the firms that will deliver work during AMP6, with many opting for alliances or frameworks that run beyond the traditional five-year AMP period.
Thames Water is the most advanced of the water companies in its procurement for AMP6, having announced a full two years ago the list of firms in its “super-alliance”.
Thames Water asset director Lawrence Gosden has described the decision to appoint an alliance for AMP6 as a “complete transformation” of the way the company delivers capital investment.
He said: “The tender process started with extensive consultation with our supply chain to form a delivery strategy with collaboration at its heart, and it ended with us joining forces with some of the leading names in the industry.
“We have a significant amount of work to do, upgrading our deteriorating infrastructure over the next 25 years and beyond while keeping customers’ bills affordable. However, if we are to achieve this, a different approach is required.”
The super alliance includes MWH Global as programme manager and has already started on some parts of the programme and expects to carry out between £2bn and £3bn of work.
Thames Water has allocated £1.4bn for security and general asset upgrade, with £200m alone for security, bringing its estate up to Defra standards and fully prepared for any security eventuality.
Since privatisation, the UK water industry has invested more than £90 billion to help replace and upgrade a largely antiquated asset base that, in some cases, dated back to the Victorian period, such as Thames Water’s Lee Valley Tunnel.
As a result of this capital investment programme, the quality and quantity of the asset base have significantly improved, delivering considerable benefits to the customer.
Having successfully tackled this challenge, the industry is now shifting its focus towards operating, maintaining and managing these assets, and ensuring that inefficiencies are minimised during such activities.
A study of operational costs for wastewater treatment works in the UK shows that top-performing sites can be nearly 50% more efficient than their counterparts.
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