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Do we need a UK water grid or is it something else? Jon Ashley, - - PowerPoint PPT Presentation
Do we need a UK water grid or is it something else? Jon Ashley, - - PowerPoint PPT Presentation
Do we need a UK water grid or is it something else? Jon Ashley, Principal Economist Water Industry Forum event 15 October 2013 1 Water today, water tomorrow Promoting interconnection The UK Governments white paper and Water Bill promote
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Water today, water tomorrow
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Source: ‘Case for change’, Environment Agency, 2011
The benefits of interconnection – environmental
New water for abstraction available for less than 30% of the time in some areas Climate change projections find that droughts such as the one that
- ccurred in 1976 will become more
common in the future The population of England and Wales is forecast to increase by 9.6 million people by the 2030s Trading is one way of helping to reduce abstraction pressures in water scarce areas
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The benefits of interconnection – financial
Water today, water tomorrow
4 Ofwat study in 2010 found almost £1 billion of benefits from increased water trading Water Resources in the South East (WRSE) group study in 2010 identified £500 million of benefits from increased resource sharing in the south east of England Customers are missing out on these potential benefits.
Environment Agency
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The benefits of interconnection – resilience
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Water today, water tomorrow
Water companies have invested in linking up their networks A main reason has been to improve security of supply for their customers
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Why isn’t water trading happening?
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Water today, water tomorrow
Economic issues 5-year return for bulk supply exporters Importers dislike the treatment of imports as operating expenditure (opex) Regulatory issues Regulatory processes do not emphasise trades Lack of published information Uncertainty over future abstractions Cultural issues Risk aversion Culture favours engineering over contracts View of customer perceptions
Based on ‘Assessment of regulatory barriers and constraints to effective interconnectivity of water supplies’, Defra, 2010
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Measures to promote water trading
Water resource planning guideline Ofwat price control incentives Ofwat ‘negotiating bulk supplies’ framework Ofwat’s network management initiative The UK Government’s Water Bill 7
Water today, water tomorrow
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Water resource planning guideline
Defra, the Welsh Government, the Environment Agency and Ofwat published a revised Water Resources Planning Guideline in June 2012 Companies wholly or mainly in England have to provide clear evidence of how they have considered interconnection and water trading options in their plans Companies wholly or mainly in Wales have to consider water trading where it would not be detrimental to the incumbent company 8
Water today, water tomorrow
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Ofwat price control incentives
We will use a totex / menu approach which will reduce the previous perceived bias against bulk supply imports We will apply water trading incentives which will encourage both bulk supply exports and imports 9
Water today, water tomorrow
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Export incentive
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Water today, water tomorrow
Purpose To encourage companies to export water where it is economic to do so Size Companies will retain 50% of lifetime economic profits from new exports with customers benefitting from the other 50% Delivery The incentive will be paid retrospectively at the 2019 price review (and possibly at the 2024 price review as well)
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Import incentive
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Water today, water tomorrow
Purpose To encourage companies to import water where it is economic to do so. Size Companies can recover the cost of an import through the totex menu plus an import incentive equal to 5% of the costs of the water imported under new agreements Delivery The incentive will be paid retrospectively in the 2020-25 price control We are only committing to making payments for the 2015-20 period Cap Import incentive payments will be capped at 0.1% of the importer’s water activity turnover in any year of the control period
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Safeguards
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Water today, water tomorrow
Trading and procurement codes To ensure that incentives are available only for efficient trades Abstraction incentive mechanism (AIM) To discourage water companies from abstracting from environmentally-sensitive sources at environmentally-sensitive times, particularly when abstracting water for exporting to another company
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Ofwat’s negotiating bulk supplies framework
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Water today, water tomorrow
The document provides a framework for water companies to use as they consider negotiating bulk supply agreements We hope it will make negotiating bulk supplies easier resulting in more trades and benefits for customers and the environment Published in August 2013
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Network management initiative
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Water today, water tomorrow
We will introduce network management reporting gradually with an option to set a trial incentive later in 2015-20 This should encourage companies to provide information leading to better network management Improved network management will be important as networks become more interconnected
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The Government’s Water Bill
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Water today, water tomorrow
First reading in the House of Commons on 27 June 2013 The Government’s upstream reforms will increase
- pportunities for new entrants to provide efficient and
innovative wholesale water supplies Government’s upstream reforms could save customers around £1.75 billion These reforms will have implications for companies’ management of their grids
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Interconnections between companies proposed
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Water today, water tomorrow
Period Number Volume (max) AMP6 (2015-20) 4 30 Ml/day AMP7 (2020-25) 2 10 Ml/day Beyond (2025-40) 5 37 Ml/day Total (2015-40) 11 77 Ml/day In their 2013 draft Water Resources Management Plans water companies have proposed several inter-company interconnections
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