Richard Laikin, Water Sector Leader, Power & Utilities at PricewaterhouseCoopers, explores opportunities for transformation of the UK water industry.

Richard Laikin:The water industry will undergo profound changes in the coming years, driven by a progressive regulatory agenda, climate change, changing customer attitudes and the deployment of digital technology.

Companies must deal with population growth, a rising risk of floods and drought, greater emphasis on cutting their carbon footprints and the need for innovations to improve efficiency and satisfy more demanding customers. 

Now is the time to challenge current thinking by considering how the industry will react to the drivers and policy levers that will interact with environmental and technological changes to shape the sector. 

That is why PwC and Yorkshire Water, have developed six scenarios which describe how the industry might evolve by 2040, each setting out a pathway towards a plausible future.  

The scenarios, which are not necessarily mutually exclusive are: 

• Market forces in action – policymakers see market forces as key to driving efficiency and innovation. The market is re-shaped, consisting of a core of regulated network monopolies and licensed contestable businesses. The value chain becomes increasingly segmented with increased competition across all parts of it.
• Community water – disruptive weather and society’s desire for sustainable solutions lead to community water companies emerging. A policy framework incentivises local ‘last mile’ water and wastewater companies and a specialist service industry develops to support them.
• Coordination of the environment – a step change in coordination is needed to optimise water use after drought and floods. Water and wastewater companies coordinate water management on a catchment basis and third parties bid to build and maintain flood defences as directed by a central coordinating agency. Supply resilience improves and flooding is reduced.
• Economies of scale – global recession creates affordability issues requiring regulatory and financial reforms. Economies of scale offer a way to secure investment at an acceptable price. Consolidation leaves two or three large network water, sewerage and flood defence services firms.
• Customers at the centre - Customers empowered by digital information demand better service, driving an agenda for greater choice of product, service and tariff. A vibrant multi-utility household retail market develops. Companies categorise consumers into groups, produce tailored packages and offer bundles like those seen in the mobile phone market.
• Smart network technologies – in-home monitoring and remote control technology blur the divide between water and energy. Customers use data to pick services to match their lifestyle and/or optimise bills. New smart networks allow companies to operate responsively – e.g. linking to weather forecasts to reduce or increase flows.

Nobody can be sure exactly which direction the water industry will take, but companies can take steps to consider the most likely changes, beyond the market reforms that are already known. 

The future is likely to demand stronger coordination and collaboration, a new dedication to digital, and strategic investments to improve resilience to climate change. 

As customers become increasingly engaged and the focus on water usage and sustainability continues to grow, the ability to do more with less may be crucial.

With these six scenarios, we hope to stimulate a new discussion about the changes water companies should be making now, and into the future. Please comment below, we are interested to hear your thoughts around the scenarios.

 In a series of blogs around The Long View report, Richard Laikin will discuss each of the scenarios in more detail.- view the report here.