Objectively Speaking: Do the industry’s infrastructure investment sums add up?

This month, Oliver Grievson, Associate Director AtkinsRéalis and Royal Academy of Engineering Visiting Professor at the University of Exeter, asks if the water industry investment plan is going to deliver a sustainable environment.

Just under thirty years ago the concept of sustainability was enshrined in Environmental Law in England & Wales. The Environmental Protection Act 1995 created, amongst other things, the Environment Agency. I was just entering University at this point and the environmental qualifications were filled with the concepts of sustainability borne out of the Rio Summit in 1992, which was heavily inspired by the Brundtland Report in 1987.

The concept was “The Three Pillars of Sustainability”, the balance between Environmental, Social and Economic Sustainability.

The Environment Act 1995 was followed up by the Environment Act in 2021 which again talked about the concept of sustainable development. For the water industry, it was the need to restore water bodies to environmental health, the need to reduce nutrients, as well as to consume water efficiently considering the water resource challenges that exist. The 2021 act also created the Office for Environmental Protection to ensure that the nation, as a whole, was looking after the environment.

The state of the river water quality in England was brought into sharp focus as a result of the Environment Audit Committee report that was published in 2022. The headline was that no rivers met a good chemical status and only 14% met a good biological status.

A flurry of work was already ongoing and the storm overflows evidence project estimated an original high limit to eliminate all storm overflows at £600 billion, later revised to eliminating all harm from storm overflows to a high estimate of £106 billion. The eventual sum used for the storm overflows reduction plan was £56 billion phased, with all harm eliminated by 2050.

This was a great step towards the sustainability of the environment, with the first target date in 2030, the PR24 business plan was the first step on a 25-year journey to an improved environment. The initial target was 14% of overflows improved (although the OFWAT plan to reduce by 16 spills per overflow, per annum, is more adventurous).

It has been stated that the water industry has suffered from a lack of infrastructure investment over the years. There was large investment in the first two investment periods (AMPs) but that tailed off. The current price review could be seen as a resetting of investment levels, with £88 billion approved, albeit £17 billion short of the investment requested by water companies.

But what is being spent, and where? Let’s start with base costs; what it costs a water company to buy pens, paper and energy, pay wages and maintain the asset base. Using OFWAT’s website data we can see that costs have increased by about 8.8% from £47.682 billion to £51.986 billion, between PR19 and PR24. This is actually quite reasonable, considering inflation and aging assets. But what about environmental improvements? In this area expenditure has gone from £10.999 billion to £23.015 billion (for wastewater/environmental enhancements). What is that additional £12.016 billion going to be spent on?

The table shows some of the enhancements based upon storm overflows, the reduction of nutrients and monitoring.

The environmental improvements when averaged across the country are going to cost each household, on average, approximately £207 per year (compared to £98.78 in this investment period) which is a significant increase. However, what was the plan for the government for this investment period and what is actually planned to be delivered?

Looking back to the storm overflows discharge plan by 2030 the aim was to reduce storm overflows by 14%. Taking a simple mathematical approach this would cost the customer £7.84 billion. However, the aim in the business plans is to deliver an improvement of 42%, which if the £56 billion is the eventual cost, would cost £23.5 billion. Allowing for the £2 billion that has been set aside for green infrastructure development the plan is still £12.9 billion short of the stated investment. In short, the industry is being expected to deliver 42% of the benefits for 15% of the money.

It is accepted that the wastewater side of the water industry has suffered from under-investment for a number of years, and it seems that this will continue if the industry is expected to deliver more than the targets that have been set with less money than was agreed in the storm overflows reduction plan.

The desire is for the water industry to deliver the plans for a better environment, but it must be done in a sustainable way if things are to improve, and we are to get the clean water environment we desire.

Table: Some of the enhancement spends in water company plans