Ofwat proposes green development incentives

Water companies should provide incentives for developers to build water efficient new homes and sites with sustainable drainage. That is one strand of a new approach Ofwat is consulting on until 8 June on the structure and scope of charges for developer services, with particular focus on the balance of costs recovered from developers and other customers (the balance of charges) and incentives for better outcomes for the environment and society (environmental incentives).

The regulator laid out its proposed approach for charges for developer services for English companies (see below) with detail will follow for Welsh firms.

Summary of proposals • Establishing environmental incentives – changes to charging rules from April 2022 to better support effective incentives for more sustainable developments. The intention is for companies and stakeholders to collaborate to share best practice in setting incentives that are consistent with Ofwat’s charging rules. This may mean that some companies replace income offset discounts with environmental incentives.

• Improving cost-reflectivity. Companies should continue to improve the cost-reflectivity and transparency of their new connection charges.

• Retaining the ‘balance of charges’ rule for AMP7 to help smooth the introduction of more widespread environmental incentives but removing it from April 2025. This relates to current provision for the balance of charges that developers pay and other customers pay to cover the costs of a new development to be broadly maintained at pre-2018 levels. Ofwat explained the rule was used to maintain overall bill stability at the time the new connection charging rules were introduced in April 2018, but that keeping it indefinitely would mean overall, customers are unlikely to pay charges that reflect underlying costs.

• Retaining the current arrangements that developers do not contribute to the costs of strategic assets.

The consultation follows a Frontier Economics report and recommendations, and separate work to improve the transparency and cost-reflectivity of new connection charges.