Ofwat has published a paper setting out the terms of reference for the sludge Technical Working Group (TWG) established to discuss detailed aspects of the main design features of the sludge market mechanism - - the bioresources market could be worth up to £780 million, according to the regulator.

Ofwat’s consultation in December 2015 ‘Water 2020: Regulatory framework for wholesale markets and the 2019 price review’ set out the regulator’s preferred design option for promoting greater use of markets within sludge treatment, recycling and disposal. The main design features of Ofwat’s proposal included the following:

• Separate binding price control for WaSC sludge (treatment, transport, recycling and disposal). Under the existing framework, there is a degree of cost allocation (and estimation) between the different wastewater wholesale activities costs, and particularly between sludge and sewage treatment.
• The development of a centralised information platform, managed by a third party (potentially Ofwat) which would publish relevant information on sludge treatment, recycling and disposal to facilitate greater use of markets.
• Guidelines on how ‘bids’ from third parties should be assessed by incumbents, in order to help mitigate potential discrimination concerns. Companies would be required to report trading activities and demonstrate due process when assessing any proposed bids from third parties.

The primary role of the TWG is to engage on the design and implementation on the Sludge Market mechanism - it is not a decision-making body. The Group’s remit is to discuss detailed aspects of the main design features.

According to the terms of reference, membership is open and will remain open to all interested parties.

Membership currently covers a range of organisations, including Ofwat, the Environment Agency, Natural Resources Wales and a number of the UK water companies.

Commercial organisations represented are biomass energy company Intervate which manufactures wood pallets and currently operates a IMWe CHP gasification facility for Yorkshire Water at Lower Brighouse wastewater treatment works which uses wood waste pellets and sludge as its feedstock, specialist sludge technology and services company SludgeTEK and Veolia.

Issues already covered in earlier meetings of the group since March this year include:

• Defining the boundary between sewage treatment and sludge
• Benefits, costs and barriers of the policy options
• RCV allocation for sludge control
• Information platform: data requirements
• Information platform: governance
• Price controls
• Valuing sludge assets

Upcoming meetings will look at assessing bids to undertake sludge services and form of contract and also revisit the information platform.

The group is expected to conclude its meetings in autumn 2016.

At the end of May Ofwat published far-reaching proposals which included opening up the market for sludge – flagging up forecasts which suggest the bioresources market could produce benefits of up to £780 million.