Water regulator Ofwat wants to hear evidence from energy companies, among other water users, on proposals to introduce bilateral trading of water.
The Water Act 2014 allowed for upstream competition, with the aim of encouraging new entrants to offer alternative water resources to water companies or directly to business users or retailers. The benefits identified at the time by Defra were mainly in avoided capital and operational investment – it thought new entrants would introduce cheaper treatment and water resources and the resulting competition would discipline water companies to make more efficient and innovative decisions in operational expenditure and capital maintenance.
There are other issues to consider. Bilateral markets might mean abstraction licence holders take more water, but the water regulator says the opportunity to trade water could equally mean abstraction licence holders have more incentive to use water efficiently. Transfers of water can raise environmental risks such a the spreading of invasive species in cases where water is exchanged across river basins but the Environment Agency has powers to limit abstractions if it considers these to be unsustainable. Water companies already trade water with each other (known as ‘bulk supplies’). Bulk supplies currently account for approximately 4% of the public water supply.
Power companies hold abstraction licences so they can take water – mainly to be used for cooling in thermal power stations. Currently they can only trade the water if they also hold a retail licence. But Ofwat notes that power plants do not run continuously. In the downtime, they could supply water which otherwise would be used for cooling.
Ofwat wants more information on the potential for bilateral markets in water and how they might be introduced.
Read the full request for information here