The canny Scot who wants to save the British their water

Water might not seem much of a problem this summer — rainy days have been far too plentiful, most people in the UK would say. But though reservoirs may be at healthy levels, the UK’s water sector is facing serious problems in the longer term.

Global warming means historic rainfall patterns will be dramatically altered, with droughts and floods becoming more common. Water supply and waste water treatment companies will have to deal with this, at the same time as an increasing population leads to stronger demand, putting more strain on water resources and a creaking, century old water and sewage infrastructure.

Alan Sutherland, chief executive of the Water Industry Commission for Scotland, is keenly aware of these problems. His organisation sees the introduction of competition as important in helping Scottish companies to use their water more efficiently.

Scotland was left out when the privatisation of water companies in England and Wales took place, but Mr Sutherland says this turned out to be a helpful in some respects.

‘It has enabled us to learn the lessons of those experiences — what works and what might not work so well,’ he explains.

Scottish Water, the only water supplier in Scotland, is now one of the UK’s biggest water utilities and the last remaining in public hands. The first moves towards opening up the Scottish water industry to increased competition were taken in 2005, when the Water Industry Commission was established under the Water Services (Scotland) Act.

The Water Industry Commission offers licences to private sector companies to provide services associated with water that had previously been the sole domain of Scottish Water. The licensing only applies to water users outside the domestic sector.

All customer–facing activities, including the issuance of bills and collection of revenues, the management of working capital, certain services such as applications for new connections and tailored advice on water services, are all now open to competition. This means other operators can step in and offer such services to business customers, and since the new system was introduced in April, four companies have been awarded licences to do so.

These are Satec, Osprey (a subsidiary of Anglian Water), Ondeo Industrial Solutions (a subsidiary of Suez Group) and Business Stream (the subsidiary of Scottish Water set up for this purpose).

These companies now have the opportunity to market their services to business. Competition for water services in Scotland was carried out in this way, and not in the same manner as in England and Wales, because the Water Industry Commission wanted to ensure that companies coming into the fray were dealing with competencies that directly faced the water consumer and were separate from the business of water infrastructure, into which it would be more complex to introduce competition.

Companies (most likely large users of water) can also opt to take on their own services, and dispense with the need to go through a billing and services company. They can do so by applying for a self-supply licence and becoming a direct customer of Scottish Water, getting their water at the wholesale instead of the retail price.

The difference can be significant, even for a large company. Mr Sutherland estimates that the difference between the wholesale and retail price for water is about five per cent for large customers. For smaller companies, the difference is much greater — Mr Sutherland estimates that a small business ‘with the proverbial kettle and a toilet’ would pay £300 to £400 a year for their water, compared to a wholesale price of about £150 to £200 per year — but the likelihood that they would want to take on their own billing and services would be much smaller.

Only a handful of large companies have so far looked into such an arrangement, says Mr Sutherland.

The way in which the new licensing system has been put into place also allows the Water Industry Commission to ensure that incentives are in place to save water, in a way that was not possible before.

Mr Sutherland explains: ‘If you put an obligation on Scottish Water to give out water efficiency advice to customers, they will do that where there is an incentive to do so. For example, where there is pressure on the water supply or pressure on extraction, or something of that ilk. Then the company is likely to give good proactive efficiency advice.’

But in other cases, as the water supply to businesses is metered and they pay by the cubic metre of water they use, the water company has little incentive to encourage its customers to use less of its product, he says.

The 2005 Act gives water service companies that help lower Scottish Water’s costs of providing a service to the end customer a discount on the price at which water is provided wholesale by Scottish Water. This could allow the water services company to make more money on each business customer (by selling water efficiency services), while reducing the amount of water those customers use (and hence the overall level of their bills).

In this way, the separation of water services to the consumer into a water utility and a service business works well, says Mr Sutherland.

‘We are trying to encourage a degree of innovation,’ says Mr Sutherland. ‘By creating appropriate rewards for customers who help Scottish Water to reduce its costs, you will reduce your overall cost of providing that service.’

He says the proof of the success of the policy is in the uptake so far. ‘About 30 per cent of all Scottish businesses have already opted for a better tariff than that which would have been available under the regulator, by having re-negotiated their water contract.

‘They may be small savings on the face of it but for most businesses these savings will go straight to the bottom line. Particularly in today’s economic environment, that can be very valuable,’ he says.

Many businesses do not even know how much they spend each year on water and waste water services, according to Envirowise, a government-funded organisation charged with helping companies to improve their environmental performance.

The organisation estimates that businesses across the UK waste more than 310m litres of water every day, and that companies could save as much as £500m a year through simple water efficiency measures. Many companies could save up to a third of their water usage — and cut down on greenhouse gases — through simple water management techniques.

‘Every drop of water has a price and a carbon impact,’ says Kate Davis, business advice manager for water at Envirowise. ‘Something as simple as fixing a dripping tap can have a positive impact on [a company’s] profits.’

Envirowise cites the example of a variable flush mechanism, which allows toilets to be flushed with a greater or lesser amount of water. Such a device costs about £20 but as it saves up to 4 litres of water per flush, it would pay for itself in less than a week. Envirowise calculates that employees flush the toilet on average four times each working day — so the cost savings of a single variable flush device could save nearly £500 a year per employee.

Most businesses do not realise that such savings can be made. Other simple techniques for saving water include changing the way that urinals work. Some are set to flush at frequent intervals even at night or weekends when there might be no employees in the building. The flush mechanisms can be adjusted so that they do not flush when there is no one present.

Fitting spray devices on the end of taps also saves water, as does using outside hoses that are fitted with triggers, and replacing conventional taps with push-button taps in staff washrooms. Water butts installed under guttering can also save water to be used on gardens.

More complex ways of saving water include recycling water from industrial processes or using ‘grey water’ — water from wash hand basins or collected rainwater — to flush toilets.

The key, says Envirowise, is for businesses to monitor water usage and understand where their water is going. Companies can have faulty pipes or serious leaks for months or longer without knowing, because they do not monitor their usage.

Mr Sutherland says these messages need to be disseminated more widely because, despite Scotland’s reputation as a rainy country, water supplies are coming under increasing pressure.

Scotland has many large users of water, from food processors to whisky distillers, while users such as farmers and bottled water companies often have rights to abstract water from underground water courses, which may not always be replenished.

Climate change, according to last year’s landmark scientific report by the United Nations-convened Intergovernmental Panel on Climate Change, also means that rainfall patterns will shift markedly. We will have more droughts, but also more floods and downpours, and less of the slow and steady rainfall we are used to. This heavier rain will cause as many problems as droughts, by washing away soil and natural flood defences, and potentially overwhelming the sewage infrastructure.

For all these reasons — and not least in order to save costs — the water model put in place in Scotland should help businesses to reduce their water use, and benefit the whole of society, says Mr Sutherland. ‘We are looking at how to encourage people to take actions that benefit not just themselves — though clearly that will happen — but also more generally the country.’

Fiona Harvey is Environment Correspondent for the Financial Times.