Difference of opinion highlights energy challenge facing water companies

Caroline Pitt -

Ask water company directors about the big issues dominating their in-trays right now and there's likely to be much common ground.

The need to deliver more for less to meet regulatory demands at the same time as preparing for non-domestic competition means all are facing the same ‘big ticket’ challenges.

But how individual companies see those challenges and what they are doing to prepare for them varies widely
That was highlighted by a survey Utilyx recently carried out among energy and sustainability managers of UK water and waste-water companies. It aimed to provide insight into their approach to energy at a time of significant concern over rising costs, volatility, security of supply and environmental pressures.

It was no surprise that cost emerged as the number one issue driving the energy strategy of companies, with 90% describing it as extremely important. Security of supply (50%) and reputation (40%) were also among the key factors highlighted.

But despite similar reasons to act, water companies have a wide range of views about how they expect the energy challenge to develop over the years ahead.

The biggest diversity was seen on prices. While some companies believe they could rise by 50% in real terms over the next five years, others expect them to edge up by just a few percentage points.

As energy already represents a significant proportion of operating costs for water companies, those two extremes would have very different financial implications.

Of course, no-one has a crystal ball, but across the industries Utilyx works in we are seeing businesses looking to gain far deeper understanding into price trends and the factors driving them.

Those businesses which can get a good handle on where prices (both wholesale and non-commodity costs) could be heading will be better placed to avoid surprises, something which will be increasingly important as competition in the water sector develops.

Tackling energy consumption across a business will also become more important amid the growing price volatility expected in the years ahead.

Half of respondents to our survey acknowledged that insufficient understanding of consumption at individual sites or across a portfolio could be a significant barrier to achieving their energy targets.

Knowing exactly when and where energy is being consumed – as close to real-time as possible - will be critical to make the most of demand side response incentives.

Such incentives were seen by respondents as having the biggest impact on the way they will buy energy by 2020.

Changing consumption patterns to move demand away from peak times is something water companies have already made major strides on in recent years, whether through rescheduling pumping operations or changing network flows.But perhaps the most exciting opportunities will come from harnessing that smart engineering with better within-day energy price intelligence.

Scheduling a particularly energy-intensive maintenance operation to coincide with an expected dip in prices for example could lead to a significant cost saving.

A tighter grip on consumption and price will also help companies make the most of greater competition and product innovation in the supply market. Although our survey found that water companies typically don’t look to fix supply deals for longer than three years currently, we are already seeing increased interest in sourcing longer term Power Purchase Agreements to provide price certainty.

Our survey also found continuing strong appetite for investment in onsite generation by water firms with cost cited as the biggest single driver. Almost two thirds (62.5%) of respondents stated that cost was an 'extremely important' factor in their investment decision.

As we might expect, half of respondents said Government incentives were key to their onsite investment decisions, highlighting that policy change could have a material impact on the sector’s investment priorities.

Given the upheaval underway in the energy sector through Electricity Market Reform and the potential of more change ahead after the General Election, energy managers will need to keep a close eye on the policy landscape and how it may affect them.

As the water industry enters a time of significant change, the pressure to deliver more for less will only intensify.

Against that backdrop, those businesses which are able to make the most of energy risk and opportunity will increasingly enjoy competitive advantage.